EXHIBIT 13
1997 ANNUAL REPORT TO STOCKHOLDERS
[GRAPHIC]
ANNUAL REPORT 1997
Maryland Federal Bancorp
LOAN BRANCH
PRODUCTION OFFICES
OFFICES
PRINCE GEORGE'S COUNTY
3505 Hamilton Street
Columbia Hayattsville (301) 779-1200
7130 Minstrel Way
Suite 220 6816 Race Track Road
(301) 596-7880 Bowie (301) 464-5240
Gaithersburg 6901 Laurel-Bowie Road
6 Montgomery Village Avenue Bowie (301) 262-3707
Suite 340
(301) 590-3150 6309 Allentown Road
Camp Springs (301) 449-3838
Waldorf
3429 Leonardtown Road 11428 Cherry Hill Road
(301) 870-4081 Beltsville (301) 595-7058
[GRAPHIC]
ANNUAL REPORT 1997 Landover 9546 Livingston Road
1400 Mercantile Lane Ft. Washington (301) 248-4257
Suite 120
(301) 925-9191 8951 Edmonston Road
Greenbelt (301) 982-4525
Edgewater
3033 Solomons Island Road 10666 Campus Way South
(301) 261-7970 Upper Marlboro (301) 336-6666
13600 Laurel-Bowie Road
Laurel (301) 490-1508
4277 Branch Avenue
CONTENTS Marlow Heights (301) 423-0021
Offices and 8490 Annapolis Road
Location Map 1 New Carrollton (301) 459-4434
Financial Highlights 2 MONTGOMERY COUNTY
To Our Shareholders 3 7934 Wisconsin Avenue
Bethesda (301) 951-0767
Management's Discussion
and Analysis 6 16575 S. Frederick Avenue
Gaithersburg (301) 869-3350
Consolidated Financial
Statements 15 10414 Auto Park Avenue
West Bethesda (301) 469-9195
Notes to Consolidated
Financial Statements 20 11200 Viers Mill Road
Wheaton (301) 933-4030
Directors and Officers 29
15421 New Hampshire Avenue
Shareholders' Information 29 Silver Spring (301) 384-7163
1470 Rockville Pike
Rockville (301) 230-8970
7945 MacArthur Boulevard
Cabin John (301) 263-0017
CHARLES COUNTY
211 East Charles Street
La Plata (301) 934-4811
11110 Mall Circle #1005
Waldorf (301) 870-4098
3425 Leonardtown Road
Waldorf (301) 843-3312
ANNE ARUNDEL COUNTY
5801 Deale-Churchton Road
Deale (410) 867-4198
3033 Solomons Island Road
Edgewater (410) 956-4401
1419 Forest Drive
Annapolis (410) 268-6635
2001 Davidsonville Road
Crofton (301) 261-3200
CALVERT COUNTY
571 N. Solomons Island Road
Prince Frederick (301) 855-1154
[MAP]
FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------
YEAR ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
(Dollars in Thousands)
TOTAL ASSETS $1,128,483 $1,143,338 $1,058,781
NET INCOME 6,525 8,739 9,063
RETURN ON EQUITY 6.90% 9.72% 11.09%
EQUITY TO ASSET RATIO 8.33% 8.16% 8.46%
NON-PERFORMING ASSETS TO AVERAGE ASSETS 0.52% 0.49% 0.44%
- ----------------------------------------------------------------------------------------------------------------------------------
[LOAN GRAPHICS]
[INTEREST INCOME GRAPHICS]
TO OUR SHAREHOLDERS
The substantial but nonrecurring events that took place during fiscal
1997 make comparisons with previous years difficult; however, it was a year
that saw both financial and corporate goals accomplished. Maryland Federal's
net income for the fiscal year ended February 28, 1997, was $6,525,000 or
$2.00 primary earnings per share and
"... a year that saw
both financial and
corporate goals
accomplished."
reflected a one-time assessment to recapitalize the Savings Association
Insurance Fund (SAIF) of approximately $3.1 million, net of taxes, or $0.95
per share. In addition, there was a $1.6 million decrease in income tax
expense, or $0.49 per share, due to an adjustment to revise prior estimates
in recording the tax provision. Without consideration of the above-mentioned
two items, earnings for fiscal 1997 would have been approximately $8.0
million or $2.46 per share.
In comparison, net income for the fiscal year ended February 29, 1996 was
$8,739,000 or $2.63 primary earnings per share. Net income for fiscal 1996
included a nonrecurring gain of approximately $2.0 million, net of taxes, or
$0.60 per share, from the sale of 55% of your Company's holdings of Federal Home
Loan Mortgage Corporation (Freddie Mac) stock. Excluding the impact of this
event, Maryland Federal earned approximately $6.7 million or $2.03 per share
during fiscal 1996.
Without consideration of the effects of the substantial but nonrecurring
events that took place during fiscal 1997 as well as the impact of the gain from
the sale of Freddie Mac stock during fiscal 1996, your Company's net income for
the fiscal year ended February 28, 1997 increased by approximately $1.3 million,
or 20 percent over the prior fiscal year.
3
One key force behind this earnings momentum was our net interest income
which increased by $2.5 million, or 9.0 percent, during fiscal 1997 compared to
the prior fiscal year. Such increase reflects management's successful efforts to
increase home equity lines of credit outstanding, from $21.4 million as of
February 29, 1996 to $51.7 million as of February 28, 1997. Every 25 basis point
rise in the prime rate increases our gross interest income on these loans at an
annualized rate of $2,500 per $1 million in loans outstanding, thereby giving
the Company a valuable cushion during periods of rising interest rates such as
those we most likely will experience in the current fiscal year. At the same
time, we made important progress in growing our core accounts by increasing
checking account balances 14.4 percent and the number of accounts by 19.5
percent. Most of our growth has been in our basic checking accounts upon which
we pay no interest, and has directly contributed to the decrease in the
Company's cost of deposits, from 5.11 percent as of February 29, 1996 to 4.84
percent as of February 28, 1997.
Complementing the increase in our net interest income was a 13.7 percent
increase in noninterest income (excluding the gain on sale of Freddie Mac
stock during fiscal 1996). Another positive development which is attributable
to the growth in checking accounts was a 16.4 percent increase in banking
service charges and fees. Also contributing to this increase was a new ATM
usage fee for noncustomers using Maryland Federal ATMs, which came about as a
result of rule changes for ATM fees. The revenues are meaningful and provide
a source of new customers since consumers frequently decide to become
Maryland Federal customers in order to access our convenient ATM network free
of charge. The revenues from these machines will enable us to expand our
network to more locations. Also contributing to the increase in noninterest
income were loan sales which often continue to generate ser-
"We believe this
next fiscal year
will give us more
opportunities to
increase our
market share..."
vice fee income after the initial gain on the sale of the loan is recorded.
In fiscal 1997, the Company sold approximately $77 million of loans to
primarily private companies.
One final force behind the earnings momentum was the low 2.7 percent
increase in noninterest expense (excluding the SAIF recapitalization
assessment during fiscal 1997). With the payment of the SAIF recapitalization
assessment, our federal deposit insurance premiums were reduced from a prior
annual rate of $.23 per $100 of insured deposits to a substantially lower
annual rate of $.064 per $100 of insured deposits. Based upon Maryland
Federal's level of deposits at February 28, 1997, this reduction is expected
to amount to approximately $1.3 million of savings, before taxes, on an
annual basis. There was also a 3.3 percent decrease in occupancy and
equipment expense, which was the result of relocating certain branch and loan
production offices to more suitable and less expensive locations as well as
the closing of our Tysons Corner loan production office. While the level of
compensation and benefits did increase by 13.2 percent, it was a direct
result of our efforts to attract and retain qualified staff as well as
additional funding required for our pension plans.
Because the last fiscal year offered few opportunities for profitable
asset growth, we had little need for growing our capital base, which is
already safely above the industry average. During the fiscal year which ended
February 28, 1997, the dividend to shareholders was increased from an annual
rate of $.64 per share to an annual rate of $.80 per share, a 25 percent
increase. Dividends to shareholders amounted to $2.2 million and the Company
repurchased 212,050 shares of its common stock at a cost of $6.3 million. In
addition, on November 21, 1996, the Board of Directors declared a 5 percent
stock dividend which was payable on December 12, 1996, to the shareholders of
record on December 2, 1996. On February 28, 1997, the closing price of the
Company's common stock was $37.25, an increase of 23 percent from the price
of $30.25 on the closing day of the previous fiscal year. The combination of
increased stock price, cash dividends, and the 5 percent stock dividend
produced a total an-
4
nual return of approximately 30 percent to shareholders in fiscal 1997.
As of February 28, 1997, non-performing loans (loans ninety days or more
delinquent but still accruing, and nonaccrual loans) totaled $4.6 million and
represented 0.47 percent of total loans receivable. In our peer group, as
defined by the Office of Thrift Supervision, the average non-performing ratio
is 0.80 percent of total loans receivable. In fiscal 1997, the Company's
provision for loan losses totaled $275,000 and chargeoffs, net of recoveries,
amounted to approximately $150,000.
In the loan area, we took a number of steps to keep our main source of
revenue healthy. During the year, we closed over 1,200 loans, representing
various first and second mortgage products, totalling approximately $152.9
million. In addition, we closed $60.7 million or 1,276 home equity lines of
credit, with almost 50 percent of those committed lines already having been
disbursed. "Money Magazine" rates our home equity line of credit as the best in
our market area. Our auto loans are often similarly rated. Over 42 percent of
our production was in our popular 7/23 and 5/25 adjustable-rate first mortgage
loans. We have been making these loans for a number of years and are beginning
to see a meaningful number of them adjust each month. The adjustments are
resulting in increases in interest income at the current interest rate level of
the market, so the effect is a positive one on our net interest margin.
We continued to add to our product line in the past fiscal year. In
mid-summer, we created our web site (www.mdfed.com) and have used it as a source
of deposits by offering special rates available only through the Internet. The
site also gives investors and potential shareholders current information and a
means to communicate through e-mail. Further efforts to make the site more
interactive are being planned. Our new Maryland Federal debit card was initially
offered in November 1996. Originally provided in response to customer requests,
this service is also generating additional fee income for your Company. Our
approach has been cautious and has allowed us to avoid credit losses while
learning precisely how consumers want to use this new service. We have also
recently reintroduced our secured savings loan, which allows customers to use
their deposits as collateral for a low-cost installment loan.
There continued to be further consolidation of financial institutions in our
market area during the past fiscal year. These mergers have benefitted your
Company greatly. Our Annapolis and Cloverly offices were relocated into better
facilities at a lower cost by occupying sites declared surplus by merger
survivors. Customers in large numbers have decided locally managed institutions,
like Maryland Federal, are the best sources of financial services. Also, we are
finding a new wealth of employees who bring with them fresh ideas and methods
and frequently, new customers.
We believe this next fiscal year will give us more opportunities to
increase our market share in both the deposit and loan communities. We plan
to provide easier customer access in our expanding markets with new or
relocated branch offices, including the opening of a new branch office in the
Cabin John area of Montgomery County as well as the relocation of our Marlow
Heights office into an adjacent, larger facility with a drive-in. In order to
keep our customer service and performance at the highest possible levels, we
are in the process of updating our technology, including the installation of
a more user-friendly, higher-capacity, 24-hour telephone banking system. We
will continue to focus on asset and liability management by stressing our
home equity lines of credit and basic checking accounts. In addition, we are
revisiting Maryland Federal's method of delivering alternative investments in
order to determine how to best serve our customers' needs.
On behalf of the Board of Directors, we would like to thank our staff for
their accomplishments during this past year and our shareholders for their
continued support. We also appreciate our customers and will work hard to make
this current fiscal year a more profitable one for all concerned.
CORDIALLY,
/s/ Richard B. Bland
- --------------------
Richard B. Bland
Chairman of the Board
/s/ Robert H. Halleck
- ---------------------
Robert H. Halleck
President and Chief Executive Officer
5
Management's Discussion and
Analysis of Financial Condition
and Results of Operations
Maryland Federal Bancorp, Inc. (the "Company") is the unitary savings and
loan holding company of Maryland Federal Savings and Loan Association (the
"Association") and its subsidiary. The Company and the Association are sometimes
collectively referred to as "Maryland Federal". The Company currently owns 100%
of the issued and outstanding common stock of the Association, which is the
principal asset of the Company. The Company does not presently own or operate
any subsidiaries other than the Association and its subsidiary, MASSLA
Corporation.
The following financial review presents management's analysis of the
consolidated financial condition and results of operations of Maryland Federal,
and should be read together with the consolidated financial statements and
accompanying notes which are presented elsewhere in this report.
REQUIRED ACTUAL EXCESS
----------------------- -------------------- ---------
(DOLLARS IN THOUSANDS)
Tangible capital $ 17,020 1.50% $ 87,600 7.72% $ 70,580
Core capital 34,040 3.00% 87,600 7.72% 53,560
Risk-based capital 48,184 8.00% 92,199 15.30% 44,015
FINANCIAL CONDITION
ASSETS. Total assets decreased by $14.9 million or 1.3% to $1.13 billion
during fiscal 1997 versus an 8.0% increase in total assets during fiscal
1996. The decrease in fiscal 1997 was due primarily to decreases of $4.6
million or 64.4% in cash and due from banks, $7.3 million or 46.7% in
interest-bearing deposits with banks, $5.4 million or 7.3% in securities
available for sale, $1.2 million or 9.2% in Federal Home Loan Bank stock, at
cost, and $791,000 or 37.8% in foreclosed real estate, net, versus the prior
fiscal year. These decreases were partially offset by increases of $1.6
million or 9.8% in federal funds sold and securities purchased under
agreements to resell, $1.4 million or 13.7% in securities held to maturity,
$768,000 or 0.1% in loans receivable, net (including loans held for sale, at
cost), and $1.0 million or 35.3% in other assets. The decrease in securities
available for sale was primarily due to normal principal repayments received
on mortgage-backed and related securities which exceeded purchases. The
decrease in cash and due from banks and interest-bearing deposits with banks
was primarily the result of the payment of the one-time Federal Deposit
Insurance Corporation ("FDIC") special assessment to recapitalize the Savings
Association Insurance Fund ("SAIF"), and management's decision to reduce
borrowings from the Federal Home Loan Bank of Atlanta ("FHLB") and repurchase
shares of common stock of the Company.
LIABILITIES. Total liabilities decreased by $16.1 million or 1.5% to $1.03
billion during fiscal 1997 versus a 7.8% increase during fiscal 1996. This
decrease in fiscal 1997 was due primarily to decreases of $17.5 million or 7.2%
in advances from the FHLB, and $245,000 or 11.4% in income taxes versus the
prior fiscal year. These decreases were partially offset by an increase of $1.7
million or 30.8% in accrued expenses and other liabilities. The decrease in FHLB
advances was the result of management's decision to utilize the Association's
cash flow to reduce borrowings.
STOCKHOLDERS' EQUITY. Maryland Federal's total stockholders' equity
increased by $1.3 million or 1.4% during fiscal 1997 versus $8.2 million or 9.5%
during fiscal 1996. During fiscal 1997, such increase reflects net income of
$6.5 million, a $2.8 million increase related to the issuance of shares under
stock plans during the year, and a $415,000 increase recorded to recognize the
net change in unrealized holding gains, net, which were offset by dividends to
shareholders of $2.2 million and the repurchase of 212,050 shares of the
Company's common stock at a cost of $6.3 million. There were no such stock
repurchases during fiscal 1996.
6
CAPITAL ADEQUACY
The Association is required under certain federal regulations to maintain
minimum tangible capital equal to 1.5% of its adjusted total assets, minimum
core capital equal to 3.0% of its adjusted total assets and minimum total
capital (a combination of core and supplementary capital) equal to 8.0% of its
risk-weighted assets. At February 28, 1997, the Association exceeded all of its
regulatory capital requirements. The prior table demonstrates the Association's
required and actual capital ratios at February 28, 1997.
In August 1993, the OTS issued a final rule which adds an interest rate risk
component to the existing 8% risk-based capital requirement. Under the rule, a
savings institution would be required to hold capital as a safeguard against
interest rate exposure in an amount equal to 50% of the decline in the market
value of the institution's portfolio equity (i.e., the net present value of the
institution's assets, liabilities and certain off-balance-sheet items) that
would result from a 200 basis point change in market interest rates. The
requirement would apply to those institutions considered to be carrying "above
normal" risk. "Above normal" risk is defined as occurring when the decline in
the market value of the portfolio equity, under a 200 basis point rate change,
exceeds 2% of the market value of the institution's assets.
However, in October 1994, the Director of the OTS indicated that it would
waive the capital deductions for institutions with a greater than "normal" risk
until the OTS publishes an appeals process. In August 1995, the OTS issued
Thrift Bulletin No. 67 which allows eligible institutions to request an
adjustment to their interest rate risk component as calculated by the OTS or to
request use of their own models to calculate their interest rate component. The
OTS also indicated that it will delay invoking its interest rate risk rule
requiring institutions with "above normal" interest rate risk exposure to adjust
their regulatory capital requirement until new procedures are implemented and
evaluated. The OTS has not yet established an effective date for the capital
deduction. Because of the Association's strong capitalization, management does
not believe that compliance with the new rule would adversely affect its
operations.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of
1991, each federal banking agency is also required to establish capital
levels for insured depository institutions including "well capitalized",
"adequately capitalized", "undercapitalized" and "critically
undercapitalized". A depository institution's capital adequacy will be
measured on the basis of its total risk-based capital ratio, Tier 1
risk-based capital ratio and leverage ratio. The degree of regulatory
intervention is tied to the institution's capital category, with increasing
scrutiny and more stringent restrictions being imposed as the institution's
capital declines.
To be considered "well capitalized," an institution must generally have a
total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital
ratio of at least 6% and a leverage capital ratio of at least 5%. At February
28, 1997, the Association was considered to be "well capitalized." See Notes 13
and 14 of Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
Maryland Federal reported net income of $6.5 million ($2.00 primary earnings
per share) in fiscal 1997 versus $8.7 million ($2.63 primary earnings per share)
and $9.1 million ($2.70 primary earnings per share) in fiscal 1996 and 1995,
respectively. Primary earnings per share for fiscal 1996 and 1995 have been
adjusted to give retroactive effect of the 5% stock dividend paid on December
12, 1996. Net income reflects the net interest income re-
The following table presents, for the periods indicated, the changes in
interest income and interest expense attributable to (i) changes in volume
(changes in volume multiplied by prior year rate) and (ii) changes in rate
(changes in rate multiplied by prior year volume). Changes in
rate/volume (determined by multiplying the change in rate by the change in
volume) have been allocated to the change in rate and the change in volume based
upon the respective percentages of their combined totals.
FISCAL YEAR
----------------------------------------------------------------
1997 VS. 1996 1996 VS. 1995
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
------------------------------- -------------------------------
VOLUME RATE NET VOLUME RATE NET
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
Interest income:
Loans receivable (1) $ 2,690 $ (577) $ 2,113 $ 11,206 $ -- $ 11,206
Mortgage-backed and related securities (565) 7 (558) (41) 72 31
Investment securities and other interest-earning assets 344 (128) 216 (854) 644 (210)
--------- --------- --------- --------- --------- ---------
Total interest income 2,469 (698) 1,771 10,311 716 11,027
--------- --------- --------- --------- --------- ---------
Interest expense:
Deposits:
Certificates of deposit 910 (1,640) (730) 6,460 4,957 11,417
Noncertificate accounts (65) (311) (376) (1,435) (314) (1,749)
Advances from FHLB and other interest-bearing liabilities (2) 886 (465) 421 3,085 1,165 4,250
--------- --------- --------- --------- --------- ---------
Total interest expense 1,731 (2,416) (685) 8,110 5,808 13,918
--------- --------- --------- --------- --------- ---------
Increase (decrease) in net interest income $ 738 $ 1,718 $ 2,456 $ 2,201 $ (5,092) $ (2,891)
========= ========= ========= ========= ========= =========
- ------------------------
(1) Includes loans held for sale.
(2) Includes interest expense on interest-bearing advances from borrowers for
taxes and insurance.
7
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amounts of interest income of Maryland Federal
from interest-earning assets and the resultant average yields; (ii) the total
dollar amounts of interest expense on interest-bearing liabilities and the
resultant average rates; (iii) net interest income and the interest rate
spread; (iv) net interest-earning assets and the net yield earned on
interest-earning assets; and (v) the ratio of total interest-earning assets
to total interest-bearing liabilities. Average balances are calculated on a
daily basis. Yields and rates at February 28, 1997, are also indicated.
YEAR ENDED
FEB. 28, YEAR ENDED FEBRUARY 28, YEAR ENDED FEBRUARY 29, FEBRUARY 28,
1997 (4) 1997 1996 1995
-------- ------- ------------------------------ ------------------------------- ------------
(DOLLARS IN THOUSANDS)
YIELD/ AVERAGE AVERAGE AVERAGE
RATE BALANCE INTEREST YIELD/ RATE BALANCE INTEREST YIELD/ RATE BALANCE
----------- ------------ --------- ----------- ------------ --------- ----------- ----------
Interest-earning assets:(1)
Loans receivable (2) 7.45% $ 993,218 $ 74,328 7.48% $ 957,320 $ 72,215 7.54% $ 809,647
Mortgage-backed and related
securities 6.81% 62,663 4,251 6.78% 71,042 4,809 6.77% 71,664
Investment securities and
other interest-earning
assets 5.38% 57,685 3,310 5.74% 51,758 3,094 5.98% 67,400
------------ --------- ------------ --------- ----------
Total interest-earning
assets 7.31% 1,113,566 81,889 7.35% 1,080,120 80,118 7.42% 948,711
--------- ---------
Noninterest-earning assets 14,392 15,771 19,971
`` ------------ ------------ ----------
Total assets $ 1,127,958 $ 1,095,891 $ 968,682
============ ============ ===========
Interest-bearing
liabilities:
Deposits:
Certificates of deposit 5.45% $ 620,652 34,329 5.53% $ 604,892 35,059 5.80% $ 485,176
Noncertificate accounts 2.63% 166,477 4,463 2.68% 168,804 4,839 2.87% 217,283
------------ --------- ------------ --------- ----------
Total deposits 4.84% 787,129 38,792 4.93% 773,696 39,898 5.16% 702,459
Advances from FHLB and
other interest-bearing
liabilities (3) 5.90% 229,347 13,413 5.85% 214,224 12,992 6.06% 161,850
------------ --------- ------------ --------- ----------
Total interest-bearing
liabilities 5.08% 1,016,476 52,205 5.14% 987,920 52,890 5.35% 864,309
--------- ---------
Noninterest-bearing
liabilities 18,530 20,751 23,366
------------ ------------ ----------
Total liabilities 1,035,006 1,008,671 887,675
Stockholders' equity 92,952 87,220 81,007
------------ ------------ ----------
Total liabilities and
stockholders' equity $ 1,127,958 $ 1,095,891 $ 968,682
============ ============ ==========
Net interest income/
interest rate spread 2.23% $ 29,684 2.21% $ 27,228 2.07%
==== ========= ==== ========= ====
Net interest-earning
assets/net yield on
interest-earning assets $ 97,090 2.67% $ 92,200 2.52% $ 84,402
============ ==== ============ ==== ==========
Ratio of interest-earning
assets to
interest-bearing
liabilities 1.10% 1.09%
==== ====
INTEREST YIELD/ RATE
--------- -----
Interest-earning assets:(1)
Loans receivable (2) $ 61,009 7.54%
Mortgage-backed and related
securities 4,778 6.67%
Investment securities and
other interest-earning
assets 3,304 4.90%
Total interest-earning ---------
assets 69,091 7.28%
Noninterest-earning assets
---------
Total assets
Interest-bearing
liabilities:
Deposits:
Certificates of deposit 23,558 4.86%
Noncertificate accounts 6,672 3.07%
---------
Total deposits 30,230 4.30%
Advances from FHLB and
other interest-bearing
liabilities (3) 8,742 5.40%
---------
Total interest-bearing
liabilities 38,972 4.51%
---------
Noninterest-bearing
liabilities
Total liabilities
Stockholders' equity
Total liabilities and
stockholders' equity
Net interest income/
interest rate spread $ 30,119 2.77%
========= ====
Net interest-earning
assets/net yield on
interest-earning assets 3.17%
====
Ratio of interest-earning
assets to
interest-bearing
liabilities 1.10%
====
- ------------------------
(1) Interest-earning assets include all assets on which interest was
contractually due.
(2) Includes loans held for sale.
(3) Average balances include $0.9 million, $1.0 million and $1.0 million of
interest-bearing advances from borrowers for taxes and insurance during
each of the respective years.
(4) Based on stated interest rates at February 28, 1997.
8
sulting from the difference between interest income on interest-earning
assets and interest expense on interest-bearing liabilities, and various
other elements such as provision for loan losses, noninterest income,
noninterest expense, and income tax expense. Included in noninterest expense
for fiscal 1997 was a one-time SAIF recapitalization assessment of $5.1
million, or approximately $3.1 million, net of applicable tax benefits.
Net Interest Income
During the fiscal year ended February 28, 1997, net interest income
increased by $2.5 million or 9.0% versus the prior fiscal year. The increase
was primarily the result of a 14 basis point net increase in the yield
earned on interest-earning assets over the rate paid on interest-bearing
liabilities ("interest rate spread"), coupled with a $4.9 million or 5.3%
increase in the relative amount of interest-earning assets over
interest-bearing liabilities during fiscal 1997 versus fiscal 1996. During
the fiscal year ended February 29, 1996, net interest income decreased by
$2.9 million or 9.6% versus the prior fiscal year. The decrease was
primarily the result of a 70 basis point net decrease in the interest rate
spread, which more than offset a $7.8 million or 9.2% increase in the
relative amount of interest-earning assets over interest-bearing liabilities
during fiscal 1996 versus fiscal 1995.
Interest Income
LOANS RECEIVABLE. For the fiscal year ended February 28, 1997, interest
earned on loans receivable (including loans held for sale) increased by $2.1
million or 2.9% over the prior fiscal year. This increase resulted from a
$35.9 million or 3.7% increase in the average balance of loans receivable,
which more than offset a 6 basis point decrease in the average yield earned
on such assets to 7.48% during fiscal 1997 as compared to the prior fiscal
year. For the fiscal year ended February 29, 1996, interest earned on loans
receivable (including loans held for sale) increased by $11.2 million or
18.4% over the prior fiscal year. This increase resulted from a $147.7
million or 18.2% increase in the average balance of loans receivable, while
maintaining an average yield earned on such assets at 7.54% during fiscal
1996 as compared to the prior fiscal year. The increase in the average
balance of loans receivable during both fiscal years was primarily due to the
increased demand in both first mortgage loans and home equity lines of
credit. The Association continues to offer adjustable-rate mortgages and
other rate sensitive loans, such as our Primeline Home Equity Lines of Credit
and second trusts. These loans are generally retained in the loan portfolio,
while those loans sold in the secondary market are primarily fixed-rate loans.
MORTGAGE-BACKED AND RELATED SECURITIES. For the fiscal year ended
February 28, 1997, interest earned on mortgage-backed and related securities
decreased by $558,000 or 11.6% over the prior fiscal year. This decrease was
primarily due to an $8.4 million or 11.8% decrease in the average balance of
such assets, which more than offset a one basis point increase in the average
yield earned on such assets to 6.78%. For the fiscal year ended February 29,
1996, interest earned on mortgage-backed and related securities increased by
$31,000 or 0.6% over the prior fiscal year. This increase resulted from a 10
basis point increase in the average yield earned on mortgage-backed and
related securities to 6.77%, which more than offset a $622,000 or 0.9%
decrease in the average balance of such assets during fiscal 1996 as compared
to fiscal 1995. The decrease in the average balance of mortgage-backed and
related securities during both fiscal years was the result of maturities and
principal repayments as well as the sales of mortgage-backed and related
securities during fiscal 1996.
INVESTMENT SECURITIES AND OTHER INTEREST-EARNING ASSETS. Interest earned
on investment securities and other interest-earning assets increased by
$216,000 or 7.0% during fiscal 1997 versus the prior fiscal year. This
increase was primarily due to a $5.9 million or 11.5% increase in the average
balance of investment securities and other interest-earning assets, which
more than offset a 24 basis point decrease in the average yield earned on
such assets to 5.74% during fiscal 1997 versus the prior fiscal year.
Interest earned on investment securities and other interest-earning assets
decreased by $210,000 or 6.4% during fiscal 1996 versus the prior fiscal
year. This decrease was primarily due to a $15.6 million or 23.2% decrease in
the average balance of investment securities and other interest-earning
assets, which more than offset a 108 basis point increase in the average
yield earned on such assets to 5.98% during fiscal 1996 versus fiscal 1995.
INTEREST EXPENSE
DEPOSITS. The Association's interest expense on deposits decreased by
$1.1 million or 2.8% to $38.8 million during fiscal 1997 versus the prior
fiscal year. This decrease was primarily due to a 23 basis point decrease in
the average rate paid on such deposits, which more than offset an increase in
the average balance of deposits of $13.4 million or 1.7% to $787.1 million
during fiscal 1997 versus the prior fiscal year. During fiscal 1996, interest
expense on deposits increased by $9.7 million or 32.0% as compared to the
prior fiscal year. This increase was primarily due to a $71.2 million or
10.1% increase in the average balance of deposits coupled with an 86 basis
point increase in the average rate paid on such deposits during fiscal 1996
versus the prior fiscal year. The Association continues to offer competitive
interest rates on deposits which helped to increase the average balance of
deposits during fiscal 1997 and 1996.
BORROWED FUNDS. Interest expense on borrowed funds (consisting of FHLB
advances and advances from borrowers for taxes and insurance) increased by
$421,000 or 3.2% during fiscal 1997 versus fiscal 1996. This increase was
primarily due to a $15.1 million or 7.1% increase in the average balance of
such funds to $229.3 million, which more than offset a 21 basis point
decrease in the average rate paid on such funds to 5.85% during fiscal 1997
versus the prior fiscal year. Interest expense on borrowed funds increased by
$4.3 million or 48.6% during fiscal 1996 versus fiscal
9
1995. This increase was primarily due to a $52.4 million or 32.4% increase in
the average balance of such funds coupled with a 66 basis point increase in
the average rate paid on such funds during fiscal 1996 versus the prior
fiscal year. The increase in the average balance of such funds during fiscal
1997 reflects management's decision during fiscal 1996 to fund a major
portion of its loan growth with borrowed funds rather than deposits. However,
during fiscal 1997, management made an effort to curtail advances whenever
possible.
PROVISION FOR LOAN
LOSSES
Loan review procedures are utilized by the Association in order to ensure
that potential problem loans are identified early, thereby lessening any
potentially negative impact such problem loans may have on the Association's
earnings. During fiscal 1997, 1996 and 1995, the Association's provision for
loan losses totaled $275,000, $120,000, and $300,000, respectively. See also
Note 4 of Notes to Consolidated Financial Statements.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb losses in the loan portfolio. Management's determination of
the adequacy of the allowance is based on an evaluation of the loan portfolio,
past loan loss experience, current economic conditions, volume, growth and
composition of the loan portfolio, and other relevant factors. The allowance is
increased by provisions for loan losses which are charged against income. While
management uses the best information available to make such determinations, no
assurance can be given as to whether future adjustments may be necessary.
As of February 28, 1997, non-performing loans (loans ninety days or more
delinquent but still accruing, and non-accrual loans) totaled $4.6 million
($4,595,000 of which consist of first mortgage loans, with the remaining $35,000
consisting of consumer and other loans) and represented 0.47% of total loans
receivable. At February 29, 1996, and February 28, 1995, non-performing loans
totaled $3.4 million ($3,333,000 of which consist of first mortgage loans, with
the remaining $53,000 consisting of consumer and other loans) and $1.6 million
($1,543,000 of which consist of first mortgage loans, with the remaining $13,000
consisting of consumer and other loans), respectively, and represented 0.34% and
0.17%, respectively, of total loans receivable. During fiscal 1997 and 1996,
non-performing loans increased by $1.2 million and $1.8 million, respectively,
as compared to the comparable prior fiscal years, due primarily to an increase
in non-performing residential first mortgage loans which resulted from the soft
economic conditions that existed in the local market area.
As of February 28, 1997, the allowance for loan losses amounted to $4.6
million and represented 99.3% of non-performing loans. As of February 29, 1996,
and February 28, 1995, the allowance for loan losses amounted to $4.5 million
and $4.4 million, respectively, and represented 132.1% and 284.2%, respectively,
of non-performing loans. During fiscal 1995, $50,000 was transferred out of the
allowance for loan losses into the allowance for losses on foreclosed real
estate. No such transfers took place during fiscal 1997 and 1996.
Noninterest Income
Total noninterest income decreased by $3.0 million or 52.1% during
fiscal 1997 versus fiscal 1996. This decrease was the result of a $3.3
million or 100.0% decrease in gain on sales of securities and a $32,000 or
25.2% decrease in other income, which more than offset increases of $244,000
or 16.4% in banking service charges and fees, $70,000 or 25.6% in loan fees
and service charges, and $48,000 or 9.2% in gain on sales of first mortgage
loans during fiscal 1997 versus the prior fiscal year. There were no sales of
securities during fiscal 1997. The increase in banking service charges and
fees was due primarily to increases in administrative fees collected on ATM
transactions for noncustomers and service fees collected on both commercial
and noncommercial checking accounts during fiscal 1997 versus fiscal 1996.
Total noninterest income increased by $3.7 million or 180.2% during fiscal
1996 versus fiscal 1995. This increase included a $3.3 million gain on sales of
securities. There were no sales of securities during fiscal 1995. In addition,
noninterest income increased by $100,000 or 7.2% in banking service charges and
fees, and $388,000 or 289.6% in gain on sales of first mortgage loans, which
more than offset decreases of $28,000 or 9.3% in loan fees and service charges,
and $89,000 or 41.2% in other noninterest income during fiscal 1996 versus the
prior fiscal year. The increase in banking service charges and fees was due
primarily to increases in administrative fees received on insurance services,
service fees collected on both commercial and noncommercial checking accounts,
and other miscellaneous fees charged on customer accounts during fiscal 1996
versus fiscal 1995. The increase in gain on sales of first mortgage loans was
due primarily to an increase in the origination of loans to be held for sale
during fiscal 1996 versus the prior fiscal year. The decrease in other
noninterest income was due primarily to decreased income earned by the
Association's subsidiary, MASSLA Corporation, which offers various insurance
products to the Association's customers and employees, during fiscal 1996 versus
fiscal 1995.
NONINTEREST EXPENSE
Total noninterest expense increased by $5.6 million or 30.0% and $1.4
million or 8.4% during fiscal 1997 and 1996, respectively, versus the
comparable prior fiscal years. Included in noninterest expense for fiscal
1997 was a one-time SAIF recapitalization assessment of $5.1 million, or
approximately $3.1 million, net of applicable tax benefits. The components of
noninterest expense are discussed below.
COMPENSATION AND BENEFITS. Compensation and benefits increased by $1.2
million or 13.2% and $436,000 or 5.2% during fiscal 1997 and fiscal 1996,
respectively, versus the comparable prior fiscal years. The increase in
compensation and benefits was due primarily
10
to increases in retirement and other employee benefit expenses, as well as
annual salary adjustments, during fiscal 1997 as compared to the prior fiscal
year. The increase in compensation and benefits during fiscal 1996 was due
primarily to additional staffing necessitated by the expansion of branch and
loan production offices as well as the creation of a new proof-of-deposit
department during fiscal 1995 which resulted in increased expenses during the
1996 fiscal year, as compared to fiscal 1995.
OCCUPANCY AND EQUIPMENT. Occupancy and equipment expense decreased by
$106,000 or 3.3% during fiscal 1997 as compared to fiscal 1996. Such decrease
was primarily the effect of relocating branch and loan production offices to
more suitable and less expensive locations and the closing of one branch office
during fiscal 1996. Occupancy and equipment expense increased by $399,000 or
14.3% during fiscal 1996 as compared to fiscal 1995. Costs incurred with the
relocation of two branch offices, the creation of a new proof-of-deposit
department, and new branch and loan production offices in fiscal 1995,
contributed to the increase in occupancy and equipment expense during fiscal
1996 as compared to fiscal 1995.
SAIF RECAPITALIZATION ASSESSMENT. Deposits of the Association are currently
insured by the FDIC through the SAIF. On September 30, 1996, legislation was
enacted to address the undercapitalization of the SAIF. As a result, the FDIC
imposed a one-time special assessment of $.657 for every $100 of assessable
deposits as of March 31, 1995. Based on the Association's assessable deposits,
Maryland Federal's pro rata share of the special recapitalization assessment was
$5.1 million or approximately $3.1 million, net of applicable tax benefits.
FEDERAL DEPOSIT INSURANCE PREMIUMS. Federal deposit insurance premiums paid
to the FDIC decreased by $255,000 or 14.6% during fiscal 1997 as compared to
fiscal 1996. Such decrease was primarily the result of the legislation discussed
above which also reduced the Association's insurance premium from 23 to 6.4
basis points effective January 1, 1997. Based upon Maryland Federal's level of
deposits at February 28, 1997, this reduction in insurance premiums is expected
to amount to approximately $1.3 million of savings, before taxes, on an annual
basis. Federal deposit insurance premiums paid to the FDIC increased by $180,000
or 11.5% during fiscal 1996, versus the prior fiscal year, due primarily to an
increase in the average balance of deposits.
LOSS ON FORECLOSED REAL ESTATE, NET. During the fiscal year ended February
28, 1997, loss on foreclosed real estate, net, decreased by $149,000 or 49.8%
versus the prior fiscal year, due primarily to a $100,000 decrease in provision
for possible losses on foreclosed real estate, as well as an increase in the
gain on the sales of such properties. During the fiscal year ended February 29,
1996, loss on foreclosed real estate, net, decreased by $65,000 or 17.9% versus
the prior fiscal year, due primarily to a decrease of $100,000 in provision for
possible losses on foreclosed real estate. Foreclosed real estate, net, totaled
$1.3 million, $2.1 million and $2.7 million at fiscal year-end 1997, 1996 and
1995, respectively. See also Note 5 of Notes to Consolidated Financial
Statements.
ADVERTISING. Advertising expense increased by $41,000 or 7.6% and $28,000
or 5.5% during fiscal 1997 and fiscal 1996, respectively, versus the comparable
prior fiscal years.
OTHER. During fiscal year ended February 28, 1997, other noninterest
expense decreased by $202,000 or 5.1% versus the prior fiscal year. This
decrease was primarily due to expenses incurred for relocating branch offices
during fiscal 1996. Such expenses included new supplies, moving expense,
printing and postage. Other noninterest expense increased by $463,000 or 13.2%
during fiscal 1996 versus the prior fiscal year. During fiscal 1996, the
increase in other noninterest expense resulted from amortization of the cost in
excess of fair value of net assets acquired related to the acquisition of
certain branch offices during fiscal 1995. In addition, increases in regulatory
exam fees, postage and telephone expense, and losses due to two branch robberies
during fiscal 1996, contributed to the increase in other noninterest expense
versus the prior fiscal year.
INCOME TAXES
Maryland Federal made provisions for income taxes of $1.5 million, $5.5
million and $5.7 million in fiscal 1997, 1996 and 1995, respectively. The
$4.0 million or 73.0% decrease during fiscal 1997 versus the prior fiscal
year was due primarily to the one-time special assessment to recapitalize the
SAIF, and a $1.6 million adjustment to revise prior estimates in recording
the tax provision. The $145,000 or 2.6% decrease during fiscal 1996 versus
the prior fiscal year was due to the decreased profitability of the
Association. The effective tax rate for each of the three fiscal years was
18.6%, 38.8% and 38.5%, respectively.
ASSET AND LIABILITY
MANAGEMENT
GENERAL. The management of Maryland Federal recognizes that as a depository
institution it is subject to interest rate risk due to timing differences in the
repricing of its assets and liabilities. As a result, Maryland Federal's
earnings are largely dependent on its net interest income, which is determined
by the Association's interest rate spread and the relative amounts of
interest-earning assets and interest-bearing liabilities.
The Association's primary objectives, with respect to asset and liability
management, are to (i) improve the rate sensitivity of its interest-earning
assets in relation to interest-bearing liabilities; and (ii) increase the ratio
of interest-sensitive assets to interest-sensitive liabilities with like
maturities.
MONITORING. Management presently monitors and evaluates the potential
impact of interest rate movements upon the market value of portfolio equity and
the level of net interest income on a monthly basis. This evaluation is
performed in compliance with OTS regulations and is
11
compared to Board established limits to ensure that interest rate risk is
maintained within these guidelines. Various strategies are employed to
further strengthen Maryland Federal's interest rate risk position.
STRATEGIES. The Association utilizes a variety of methods to achieve its
asset and liability objectives, including emphasis on origination of adjustable
first trust loans for its portfolio, second trusts, and the sale of fixed-rate
mortgage loans in the secondary market. For the year ended February 28, 1997,
the Association's interest rate spread increased to 2.21% as compared to 2.07%
during the prior fiscal year, reflecting a 21 basis point decrease in the
Association's rate paid on interest-bearing liabilities which more than offset a
7 basis point decrease in the yield earned on interest-earning assets.
REPRICING. Comparison of maturities of repricing interest-earning assets
and interest-bearing liabilities is illustrated in the following "gap" table.
This table defines interest-sensitive assets and liabilities as those which
mature or reprice within one year or less. As shown in the table, the ratio of
the Association's one-year gap to total assets was 32.5% as of February 28, 1997
versus 29.3% and 24.0% as of February 29, 1996 and February 28, 1995,
respectively. The deterioration in the one-year gap at February 28, 1997 versus
the prior fiscal year end is due primarily to increases of $40.2 million in
deposits and $8.3 million in advances from the FHLB and other interest-bearing
liabilities which more than offset increases of $13.8 million in loans and
mortgage-backed and related securities and $3.1 million in investment securities
and other interest-earning assets. These changes reflect management's decision
during fiscal 1996 and 1995 to fund loan growth through a combination of
short-term advances from the FHLB and longer-term certificates of deposits,
which are now approaching their scheduled maturities.
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
Interest-sensitive assets:
Loans and mortgage-backed and related securities (1) $ 266,478 $ 252,629 $ 216,868
Investment securities and other interest-earning assets 48,635 45,585 41,374
------------ ------------ ------------
Total interest-sensitive assets 315,113 298,214 258,242
------------ ------------ ------------
Interest-sensitive liabilities:
Deposits 544,571 504,358 389,177
Advances from FHLB and other interest-bearing liabilities (2) 136,847 128,579 123,464
------------ ------------ ------------
Total interest-sensitive liabilities 681,418 632,937 512,641
------------ ------------ ------------
Excess of interest-sensitive liabilities over interest-sensitive assets
(Gap) $ 366,305 $ 334,723 $ 254,399
============ ============ ============
Ratio of Gap to total assets 32.5% 29.3% 24.0%
============ ============ ============
- ------------------------
(1) Includes loans held for sale.
(2) Includes $0.7 million, $0.8 million and $0.9 million of interest-bearing
advances from borrowers for taxes and insurance for each of the respective
years.
LIQUIDITY AND CAPITAL RESOURCES
The Association is required under certain federal regulations to maintain
specified levels of "liquid" investments including United States Government and
federal agency securities and other investments. Regulations currently in effect
require the Association to maintain liquid assets of not less than 5% of its net
withdrawable accounts plus short-term borrowings, of which short-term liquid
assets must consist of not less than 1%. The Association has consistently
maintained liquidity at or above the levels required by the regulations.
The Association's principal sources of funds are deposits, amortization and
prepayment of outstanding loans, borrowed funds and proceeds from the sale of
loans. During the past several years, the Association has used such funds
primarily to maintain its required liquidity levels, meet its ongoing
commitments to fund maturing savings certificates and savings withdrawals, and
fund existing and continuing loan commitments.
At February 28, 1997, the Association had $3.2 million of undisbursed loan
funds, $51.5 million in approved loan commitments and $2.0 million in
commitments to purchase mortgage-backed and related securities. These
commitments were partially offset by $6.8 million in forward commitments to
sell. The Association anticipates that it will have the funds necessary to meet
these obligations through the sources of funds mentioned above. The amount of
certificate accounts which are scheduled to mature in fiscal 1998 is $465.8
million. Management believes that, by evaluating competitive instruments and
pricing in its market area, it can, in most circumstances, manage and control
maturing deposits so that a substantial amount of such deposits are redeposited
in the Association.
12
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data presented in this
report have been prepared in accordance with generally accepted accounting
principles, which typically require the measurement of financial position and
operating results in terms of historical dollars without considering changes in
the relative purchasing power of money over time due to inflation. See Note 23
of Notes to Consolidated Financial Statements for estimated fair values of
certain assets and liabilities.
Virtually all of the assets and liabilities of Maryland Federal are monetary
in nature. As a result, interest rates have a more significant impact on
Maryland Federal's performance than the general level of inflation. Interest
rates do not necessarily move in the same direction or in the same magnitude as
the prices of goods and services.
The following table summarizes the estimated maturities or repricing of
Maryland Federal's interest-earning assets and interest-bearing liabilities at
February 28, 1997. The weighted average rate of each category of assets and
liabilities is given below the respective dollar amounts. Management assumes,
based on the Association's experience, that certain loans receivable and
mortgage-backed securities can be expected to experience prepayments of
principal and that a substantial amount of core deposits will have significantly
longer effective maturities in spite of being subject to immediate withdrawal
terms.
FEBRUARY 28, 1997
-------------------------------------------------------------------------------------------
MORE THAN MORE THAN MORE THAN MORE THAN
1 YEAR 3 YEARS 5 YEARS 10 YEARS MORE
1 YEAR TO TO TO TO THAN
OR LESS 3 YEARS 5 YEARS 10 YEARS 20 YEARS 20 YEARS TOTAL
----------- ----------- ---------- ---------- ------------------ --------- ----------
(DOLLARS IN THOUSANDS)
Interest-
earning
assets:
Fixed-rate
mortgage
loans (1) $ 70,393 $ 85,909 $ 55,437 $ 89,233 $ 70,403 $ 11,979 $ 383,354
8.37% 8.04% 7.78% 7.73% 7.79% 7.71% 7.94%
Adjustable
and
floating-rate
mortgage loans 170,375 256,145 134,522 43,597 -- -- 604,639
7.51% 6.86% 7.00% 7.44% -- -- 7.12%
Consumer and
other
loans 1,341 1,813 805 -- -- -- 3,959
9.40% 9.40% 9.40% -- -- -- 9.40%
Mortgage-
backed and
related
securities 24,369 12,071 6,917 12,485 8,017 276 64,135
6.54% 6.89% 7.01% 7.00% 7.02% 8.06% 6.81%
Investment
securities
and other
interest-
earning
assets 48,635 3,096 2,107 245 -- -- 54,083
5.37% 5.24% 5.89% 4.15% -- -- 5.38%
----------- ----------- ---------- ---------- ------------------ --------- ----------
Total
interest-
earning
assets 315,113 359,034 199,788 145,560 78,420 12,255 1,110,170
7.30% 7.14% 7.21% 7.57% 7.71% 7.72% 7.31%
----------- ----------- ---------- ---------- ------------------ --------- ----------
Interest-
bearing
liabilities:
Deposits 544,571 158,778 31,223 29,005 18,369 6,987 788,933
5.03% 5.19% 3.64% 2.48% 2.70% 3.01% 4.84%
Advances
from FHLB
and
other
interest-
bearing
liabilities
(2) 136,847 89,500 -- 680 -- -- 227,027
5.81% 6.03% -- 6.50% -- -- 5.90%
----------- ----------- ---------- ---------- ------------------ --------- ----------
Total
interest-
bearing
liabilities 681,418 248,278 31,223 29,685 18,369 6,987 1,015,960
5.19% 5.49% 3.64% 2.57% 2.70% 3.01% 5.08%
----------- ----------- ---------- ---------- ------------------ --------- ----------
Excess
(deficiency)
of
interest-
earning
assets
over
interest-
bearing
liabilities $ (366,305) $ 110,756 $ 168,565 $ 115,875 $ 60,051 $ 5,268 $ 94,210
=========== =========== ========== ========== ======== ========== =========
Cumulative
excess
(deficiency)
of
interest-
earning
assets
over
interest-
bearing
liabilities $ (366,305) $ (255,549) $ (86,984) $ 28,891 $ 88,942 $94,210 $ 94,210
=========== =========== ========== ========== ========== ========= ==========
Cumulative
excess
(deficiency)
as a
percentage
of total
assets (32.46)% (22.65)% (7.71)% 2.56% 7.88% 8.35% 8.35%
=========== =========== ========== ========== ========== ========= ==========
- ------------------------
(1) Includes loans held for sale.
(2) Includes $0.7 million of interest-bearing advances from borrowers for taxes
and insurance.
13
Selected Consolidated
Financial and Operating Data
FEBRUARY 28,
FEB. 28, FEB. 29, -----------------------------------
------ -------
1997 1996 1995 1994 1993
------------ ------------ ------------ ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
AT YEAR END:
Total assets $ 1,128,483 $ 1,143,338 $ 1,058,781 $ 872,167 $ 814,789
Loans receivable (1) 991,952 991,184 898,728 696,993 644,329
Mortgage-backed and related securities 64,135 66,195 75,436 44,106 53,586
Investment securities and other interest-
earning assets (2) 54,083 62,367 60,765 105,100 92,835
Deposits 788,933 788,931 763,754 678,050 666,232
Borrowed funds 226,280 243,780 190,730 103,180 65,680
Stockholders' equity 95,261 93,982 85,796 77,623 69,196
FOR THE YEAR ENDED:
Total interest income 81,889 80,118 69,091 63,250 67,722
Total interest expense 52,205 52,890 38,972 32,411 38,598
------------ ------------ ------------ ---------- ----------
Net interest income 29,684 27,228 30,119 30,839 29,124
Provision for loan losses 275 120 300 662 1,940
------------ ------------ ------------ ---------- ----------
Net interest income after provision for loan
losses 29,409 27,108 29,819 30,177 27,184
Banking service charges and fees 1,736 1,492 1,392 1,594 1,087
Gain on sales of interest-earning assets 570 3,834 134 566 665
Other noninterest income 439 401 518 792 636
SAIF recapitalization assessment 5,077 -- -- -- --
Other noninterest expense 19,058 18,566 17,125 14,320 12,707
------------ ------------ ------------ ---------- ----------
Income before income taxes and cumulative
effect of accounting change 8,019 14,269 14,738 18,809 16,865
Income tax expense 1,494 5,530 5,675 7,097 6,485
------------ ------------ ------------ ---------- ----------
Income before cumulative effect of accounting
change 6,525 8,739 9,063 11,712 10,380
Cumulative effect of change in accounting for
income taxes -- -- -- 547 --
------------ ------------ ------------ ---------- ----------
Net income $ 6,525 $ 8,739 $ 9,063 $ 12,259 $ 10,380
============ ============ ============ ========== ==========
Primary earnings per share (3) $ 2.00 $ 2.63 $ 2.70 $ 3.54 $ 3.02
============ ============ ============ ========== ==========
Return on equity 6.9% 9.7% 11.1% 16.7% 16.0%
Equity-to-assets 8.3% 8.2% 8.5% 8.7% 7.9%
Cash dividends declared per share (3) $ .675 $ .548 $ .438 $ .376 $ .242
Dividend payout ratio 33.8% 20.8% 16.2% 10.6% 8.0%
Number of full service facilities 25 25 26 21 21
- ------------------------
(1) Includes loans held for sale.
(2) Includes investment securities, federal funds sold, securities purchased
under agreements to resell and interest-bearing deposits with banks.
(3) As adjusted for 5% stock dividend declared on November 21, 1996.
14
Financial Statements
- ----------------------------------------------
Consolidated Statements of Financial Condition 16
- ----------------------------------------------
Consolidated Statements of Income 17
- ----------------------------------------------
Consolidated Statements of Stockholders' Equity 18
- ----------------------------------------------
Consolidated Statements of Cash Flows 19
- ----------------------------------------------
Notes to Consolidated Financial Statements 20
- ----------------------------------------------
15
MARYLAND FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------------------ ------------
(IN THOUSANDS)
ASSETS
Cash and due from banks................................................ $ 2,558 $ 7,194
Interest-bearing deposits with banks................................... 8,381 15,711
Federal funds sold and securities purchased under agreements to resell. 17,665 16,092
Securities available for sale.......................................... 69,360 74,791
Securities held to maturity (fair value, 1997--$11,417,000 and
1996--$10,007,000)................................................... 11,448 10,072
Loans held for sale, at cost........................................... 2,679 16,296
Loans receivable, net.................................................. 989,273 974,888
Accrued interest receivable............................................ 6,021 6,009
Federal Home Loan Bank stock, at cost.................................. 11,364 12,514
Foreclosed real estate, net............................................ 1,299 2,090
Premises and equipment, net............................................ 4,576 4,829
Other assets........................................................... 3,859 2,852
---------- ------------
Total assets...................................................... $1,128,483 $1,143,338
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits............................................................... $ 788,933 $ 788,931
Advances from Federal Home Loan Bank of Atlanta........................ 226,280 243,780
Advances from borrowers for taxes and insurance........................ 9,074 9,124
Income taxes........................................................... 1,898 2,143
Accrued expenses and other liabilities................................. 7,037 5,378
---------- ------------
Total liabilities................................................. 1,033,222 1,049,356
---------- ------------
COMMITMENTS AND CONTINGENCIES (Notes 16 and 20)
STOCKHOLDERS' EQUITY
Preferred stock; 10,000,000 shares authorized, none issued............. -- --
Common stock; $.01 par value; 15,000,000 shares authorized; shares
issued, 1997--4,093,576 and 1996--3,821,081.......................... 41 38
Additional paid-in capital............................................. 42,625 34,917
Retained earnings, substantially restricted............................ 66,976 67,492
Unrealized holding gains, net.......................................... 2,835 2,420
Treasury stock, at cost; 1997--883,426 shares and 1996--671,376 shares. (17,216) (10,885)
----------- ------------
Total stockholders' equity........................................ 95,261 93,982
----------- ------------
Total liabilities and stockholders' equity...................... $1,128,483 $1,143,338
========== ============
See Notes to Consolidated Financial Statements.
16
MARYLAND FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Interest income:
Loans receivable:
First mortgage loans....................................... $ 67,196 $ 67,093 $ 56,960
Consumer and other loans................................... 7,132 5,122 4,049
Securities available for sale and held to maturity........... 5,154 5,921 6,361
Other interest-earning assets................................ 2,407 1,982 1,721
------------ ------------ ------------
Total interest income...................................... 81,889 80,118 69,091
------------ ------------ ------------
Interest expense:
Deposits..................................................... 38,792 39,898 30,230
Advances from Federal Home Loan Bank of Atlanta.............. 13,385 12,962 8,714
Advances from borrowers for taxes and insurance.............. 28 30 28
------------ ------------ ------------
Total interest expense..................................... 52,205 52,890 38,972
------------ ------------ ------------
Net interest income............................................ 29,684 27,228 30,119
Provision for loan losses...................................... 275 120 300
------------ ------------ ------------
Net interest income after provision for loan losses............ 29,409 27,108 29,819
------------ ------------ ------------
Noninterest income:
Banking service charges and fees............................. 1,736 1,492 1,392
Loan fees and service charges................................ 344 274 302
Gain on sales of first mortgage loans........................ 570 522 134
Gain on sales of securities.................................. -- 3,312 --
Other........................................................ 95 127 216
------------ ------------ ------------
Total noninterest income................................... 2,745 5,727 2,044
------------ ------------ ------------
Noninterest expense:
Compensation and benefits.................................... 9,991 8,828 8,392
Occupancy and equipment...................................... 3,084 3,190 2,791
SAIF recapitalization assessment............................. 5,077 -- --
Federal deposit insurance premiums........................... 1,497 1,752 1,572
Loss on foreclosed real estate, net.......................... 150 299 364
Advertising.................................................. 577 536 508
Other........................................................ 3,759 3,961 3,498
------------ ------------ ------------
Total noninterest expense.................................. 24,135 18,566 17,125
------------ ------------ ------------
Income before income taxes..................................... 8,019 14,269 14,738
Income tax expense............................................. 1,494 5,530 5,675
------------ ------------ ------------
NET INCOME..................................................... $ 6,525 $ 8,739 $ 9,063
============ ============ ============
Primary earnings per share..................................... $ 2.00 $ 2.63 $ 2.70
============ ============ ============
See Notes to Consolidated Financial Statements.
17
MARYLAND FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Retained Unrealized
Additional Earnings, Holding Total
Common Paid-in Substantially Gains, Treasury Stockholders'
Stock Capital Restricted Net Stock Equity
------------- ----------- ------------ ----------- ---------- ------------
(In Thousands)
Balance, February 28, 1994...................... $36 $32,134 $52,890 $ -- $(7,437) $77,623
Net income..................................... -- -- 9,063 -- -- 9,063
Issuance of 69,172 shares of common stock under
stock plans and related tax benefits.......... 1 1,057 -- -- -- 1,058
Purchase of 140,475 shares of treasury stock... -- -- -- -- (3,448) (3,448)
Cash dividends ($.438 per share)............... -- -- (1,416) -- -- (1,416)
Change in unrealized holding gains, net........ -- -- -- 2,916 -- 2,916
--- ----------- ------------ ----------- ---------- ------------
Balance, February 28, 1995...................... 37 33,191 60,537 2,916 (10,885) 85,796
Net income..................................... -- -- 8,739 -- -- 8,739
Issuance of 108,657 shares of common stock
under stock plans and related tax benefits.... 1 1,726 -- -- -- 1,727
Cash dividends ($.548 per share)............... -- -- (1,784) -- -- (1,784)
Change in unrealized holding gains, net........ -- -- -- (496) -- (496)
--- ----------- ------------ ----------- ---------- ------------
Balance, February 29, 1996...................... 38 34,917 67,492 2,420 (10,885) 93,982
Net income..................................... -- -- 6,525 -- -- 6,525
Issuance of 123,466 shares of common stock
under stock plans and related tax benefits.... 1 2,837 -- -- -- 2,838
Stock dividend, 149,029 shares at $32.75 per
share......................................... 2 4,871 (4,873) -- -- --
Cash paid in lieu of stock dividend for
fractional shares............................. -- -- (11) -- -- (11)
Purchase of 212,050 shares of treasury stock... -- -- -- -- (6,331) (6,331)
Cash dividends ($.675 per share)............... -- -- (2,157) -- -- (2,157)
Change in unrealized holding gains, net......... -- -- -- 415 -- 415
--- ----------- ------------ ----------- ---------- ------------
Balance, February 28, 1997...................... $41 $42,625 $66,976 $2,835 $(17,216) $95,261
=== =========== ============ =========== ========== ============
See Notes to Consolidated Financial Statements.
18
MARYLAND FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended Year Ended
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
(In Thousands)
OPERATING ACTIVITIES:
Net income............................................................ $ 6,525 $ 8,739 $ 9,063
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization:
Premises and equipment............................................. 916 1,123 884
Other.............................................................. (1,021) (722) (1,547)
Loans originated for sale........................................... (63,723) (67,152) (15,454)
Sale of loans originated for sale................................... 77,340 53,727 13,967
Provision for losses on loans and foreclosed real estate............ 375 320 600
Gain on sales of securities......................................... -- (3,312) --
Gain on sales of foreclosed real estate............................. (102) (27) (74)
Deferred income taxes............................................... 181 (970) (211)
Tax benefits relating to stock options.............................. 661 603 315
Decrease (increase) in:
Accrued interest receivable........................................ (12) (398) (783)
Other assets....................................................... (1,331) 1,725 (2,283)
Increase (decrease) in:
Current income taxes payable....................................... (649) (622) 409
Accrued expenses and other liabilities............................. 1,521 (85) 1,683
------------ ------------ ------------
Net cash provided by (used in) operating activities............... 20,681 (7,051) 6,569
------------ ------------ ------------
INVESTING ACTIVITIES:
Loans originated..................................................... (120,104) (149,152) (225,562)
Loans purchased...................................................... -- (1,006) (71,535)
Principal collected on loans......................................... 105,379 71,825 97,445
Purchases of securities:
Available for sale.................................................. (10,950) (3,364) (619)
Held to maturity.................................................... (13,852) -- (54,796)
Principal collected on mortgage-backed and related securities........ 11,265 8,361 10,056
Proceeds from maturities of securities:
Available for sale.................................................. 6,411 -- 2,557
Held to maturity.................................................... 12,000 14,130 17,000
Proceeds from sales of securities:
Available for sale.................................................. -- 3,423 --
Held to maturity.................................................... -- 1,909 --
Net decrease (increase) in federal funds sold and
securities purchased under agreements to resell..................... (1,573) (6,469) 19,395
Decrease (increase) in Federal Home Loan Bank stock.................. 1,150 (2,730) (1,633)
Proceeds from sales of foreclosed real estate........................ 2,022 713 871
Purchases of premises and equipment.................................. (663) (563) (2,762)
------------ ------------ ------------
Net cash used in investing activities............................. (8,915) (62,923) (209,583)
------------ ------------ ------------
FINANCING ACTIVITIES:
Net increase in deposits............................................. 2 25,177 35,202
Proceeds from acquisitions of deposits............................... -- -- 50,502
Proceeds from Federal Home Loan Bank advances........................ 151,000 249,350 178,800
Principal payments on Federal Home Loan Bank advances................ (168,500) (196,300) (91,250)
Net increase (decrease) in advances from borrowers for taxes and
insurance........................................................... (50) (587) 1,060
Proceeds from issuance of stock under stock plans.................... 2,177 1,124 743
Cash paid in lieu of stock dividend for fractional shares............ (11) -- --
Purchase of treasury stock........................................... (6,331) -- (3,448)
Cash dividends paid.................................................. (2,019) (1,660) (1,363)
------------ ------------ ------------
Net cash provided by (used in) financing activities............... (23,732) 77,104 170,246
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... (11,966) 7,130 (32,768)
CASH AND CASH EQUIVALENTS:
Beginning of year................................................... 22,905 15,775 48,543
------------ ------------ ------------
End of year......................................................... $ 10,939 $ 22,905 $ 15,775
============ ============ ============
See Notes to Consolidated Financial Statements.
19
MARYLAND FEDERAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Maryland Federal Bancorp, Inc. (the "Company") is the unitary savings and
loan holding company and sole stockholder of Maryland Federal Savings and
Loan Association (the "Association"). The Company does not presently own or
operate any subsidiary except for the Association. The Association operates
25 branches located in Prince George's, Montgomery, Charles, Calvert and Anne
Arundel Counties in Maryland.
The Association is primarily engaged in the business of attracting deposits
from the general public and investing such deposits in permanent loans
secured by first liens on one- to four-family residential properties located
in the Washington, DC area. The Association, through a subsidiary, engages in
insurance agency activities to a limited extent.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company,
the Association and its wholly-owned subsidiary, MASSLA Corporation
(collectively, "Maryland Federal"). All significant intercompany balances and
transactions have been eliminated in consolidation.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
For the purpose of presentation in the consolidated statements of cash flows,
cash and cash equivalents include cash and due from banks, and
interest-bearing deposits with banks.
SECURITIES:
Effective March 1, 1994, Maryland Federal adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). Debt securities for which Maryland Federal
has the positive intent and ability to hold to maturity are classified as
held to maturity and are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using a method which
approximates the interest method. Debt securities not classified as held to
maturity and equity securities are classified as available for sale and
reported at fair value, with unrealized gains and losses excluded from
earnings and reported in a separate component of stockholders' equity, net of
the related tax effect.
Should any securities be sold, gains and losses would be recognized using the
specific-identification method. If there are declines in the fair value of
individual securities below their cost that are other than temporary, such
declines would be included in earnings as realized losses.
The adoption of SFAS 115, which has not been applied retroactively to prior
years' financial statements, resulted in an increase in stockholders' equity
by an after-tax amount of $2.7 million as of March 1, 1994. Prior to March 1,
1994, equity securities were stated at cost and debt securities, including
mortgage-backed and related securities, were stated at cost, adjusted for
amortization of premiums and discounts.
LOANS HELD FOR SALE:
Mortgage loans held for sale in the secondary market are carried at the lower
of aggregate cost or estimated fair value. Net unrealized losses, if any, are
recognized in a valuation allowance by charges to operations.
LOANS RECEIVABLE:
Loans receivable are stated at unpaid principal balances, less the allowance
for loan losses, and net deferred loan origination fees, costs and discounts.
Discounts and premiums on loans are amortized and reflected as an addition to
or reduction of income using the interest method over the remaining period to
contractual maturity.
Effective March 1, 1995, Maryland Federal adopted, on a prospective basis,
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" ("SFAS 114") and Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan--Income
Recognition and Disclosures" ("SFAS 118"). These statements require creditors
to account for impaired loans, except for those loans that are accounted for
at fair value or at the lower of cost or fair value, at the present value of
the expected future cash flows discounted at the loan's effective interest
rate, or the fair value of the collateral if the loan is collateral
dependent. A loan is impaired when, based on current information and events,
it is probable that a creditor will be unable to collect all principal and
interest amounts due according to the contractual terms of the loan agreement.
Neither the initial adoption nor the ongoing effect to date of SFAS 114 and
SFAS 118 has had a significant impact on the consolidated financial
statements of Maryland Federal.
The allowance for loan losses is increased by provisions charged to income
and decreased by charge-offs, net of recoveries. Management's periodic
evaluation of the adequacy of the allowance is based on the Association's
past loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic conditions.
Uncollectible interest on loans that are contractually past due is charged
off or an allowance is established based on management's periodic evaluation.
The allowance is established by a charge to interest income equal to all
interest previously accrued, and income is subsequently recognized only to
the extent cash payments are received until, in management's judgment, the
borrower's ability to make periodic interest and principal payments is no
longer in doubt, in which case the loan is returned to accrual status.
LOAN ORIGINATION AND COMMITMENT FEES AND RELATED COSTS:
Loan origination and commitment fees and certain direct loan origination
costs are being deferred and the net amount is being amortized as an
adjustment of the related loan's yield over the life of the loan. When loans
are sold or prepaid, the related unamortized loan fees are recognized in
income.
LOAN SERVICING:
The Association services mortgage loans for investors that are not included
in the consolidated statements of financial condition. Fees earned for
servicing loans owned by investors are reported as income when the related
mortgage loan payments are collected. Loan servicing costs are charged to
expense as incurred.
Effective January 1, 1997, Maryland Federal adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("SFAS 125"), which
establishes accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on the consistent
application of a financial-components approach that focuses on control. This
approach requires the recognition of financial assets and servicing assets
that are controlled by the reporting entity and the liabilities it has
incurred, the derecognition of financial assets when control is surrendered,
and the derecognition of liabilities when extinguished. This statement
provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. The
adoption of SFAS 125 has not had a significant impact on the consolidated
financial statements of Maryland Federal.
FORECLOSED REAL ESTATE:
Real estate acquired through, or in lieu of, loan foreclosure is initially
recorded at the lower of cost or fair value at the date of acquisition.
Losses estimated at the time of acquisition are charged to earnings in the
period in which the property is acquired and reduced by any allowance for
loss previously provided against the related loan. Holding costs are charged
to expense in the period in which incurred. Gains or losses on the sale of
foreclosed real estate are recognized upon disposition of the property.
Management periodically evaluates the recoverability of the carrying value of
foreclosed real estate. An allowance, if necessary, is provided to reduce the
carrying value to its fair value less estimated selling costs.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided over the estimated useful lives of the
respective assets principally on the straight-line method. Leasehold
improvements are being amortized using the straight-line method over the
terms of the related leases.
COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED:
Cost in excess of fair value of net assets acquired is being amortized using
the straight-line method over 7 years. The unamortized balance was $1,281,000
and $1,568,000 as of February 28, 1997 and February 29, 1996, respectively,
and is included in other assets in the accompanying consolidated statements
of financial condition.
LONG-LIVED ASSETS:
Long-lived assets to be held and those to be disposed of and certain other
intangibles are evaluated for impairment using the guidance of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"),
which was adopted by Maryland Federal on March 1, 1996. SFAS 121 establishes
when an impairment loss should be recognized and how an impairment loss
should be measured. The adoption of SFAS 121 did not have a significant
impact on the consolidated financial statements of Maryland Federal.
20
INCOME TAXES:
The Company files a consolidated Federal income tax return with its
subsidiary. Deferred tax assets and liabilities are recognized for estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are recorded using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax laws or
rates is recognized in income in the period that includes the enactment date.
EARNINGS PER SHARE:
Primary earnings per share are computed based on the weighted average number
of shares actually outstanding, as adjusted for applicable stock dividends,
plus the shares that would be outstanding assuming exercise of dilutive stock
options, all of which are considered to be common stock equivalents. The
number of shares that would be issued from the exercise of stock options has
been reduced by the number of shares that could have been purchased from the
proceeds at the average market price of the Company's stock during the year.
The number of shares used in the computations of primary earnings per share
was 3,263,344, 3,325,845, and 3,356,401 in fiscal 1997, 1996 and 1995,
respectively. Maryland Federal has not separately reported fully diluted
earnings per share since the amounts are not materially different from
primary earnings per share.
STOCK-BASED COMPENSATION:
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") was issued in October 1995. This
statement encourages all entities to adopt a fair value based method of
accounting for their employee stock-based compensation plans. The statement
also allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB Opinion 25"). Entities electing to remain with the
accounting in APB Opinion 25 must make pro forma disclosures of net income
and earnings per share, as if the fair value based method of accounting
defined in SFAS 123 had been applied. The accounting and disclosure
requirements of SFAS 123 are generally effective for transactions entered
into in fiscal years that begin after December 15, 1995, although they may be
adopted on issuance. Pro forma disclosures are required for entities that
elect to continue to measure compensation cost using APB Opinion 25, and must
include the effects of the awards granted in fiscal years that begin after
December 15, 1994. Maryland Federal applies APB Opinion 25 in accounting for
its stock compensation plans, as permitted by SFAS 123. Accordingly, no
compensation cost has been recognized. See Note 18 to Consolidated Financial
Statements.
DERIVATIVE FINANCIAL INSTRUMENTS:
Effective March 1, 1995, Maryland Federal adopted, on a prospective basis,
Statement of Financial Accounting Standards No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments".
This statement requires certain disclosures about financial derivatives,
including amounts, nature and terms of the instruments. All derivative
financial instruments held or issued by Maryland Federal are held or issued
for purposes other than trading. Such financial instruments are recorded in
the financial statements when they are funded or related fees are incurred or
received. See disclosures in Notes 16, 20 and 23 to Consolidated Financial
Statements.
NEW ACCOUNTING PRONOUNCEMENTS:
Statement of Financial Accounting Standards No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125" was issued in
December 1996. This statement defers the effective date until January 1, 1998
for certain provisions of SFAS 125 dealing with secured borrowings and
repurchase agreements, dollar-roll, and securities lending. This statement is
not expected to have a significant impact on Maryland Federal.
Statement of Financial Accounting Standards No. 128, "Earnings per Share" was
issued in February 1997. This statement replaces the presentation of primary
earnings per share with a presentation of basic earnings per share and also
requires dual presentation of basic and diluted earnings per share on the
face of the income statement. Basic earnings per share exclude dilution and
are computed by dividing income available to common stockholders by the
weighted-average number of shares outstanding for the period. Diluted
earnings per share reflect the potential dilution that could occur if
securities or other contracts to issue common stock were exercised. This
statement will be effective for financial statements issued for periods
ending after December 15, 1997, and requires restatement of all prior-period
earnings per share data presented.
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" was issued in February 1997. This
statement establishes standards for disclosing information about an entity's
capital structure. This statement is effective for financial statements for
periods ending after December 15, 1997.
RECLASSIFICATIONS:
Certain amounts for fiscal 1996 and 1995 have been reclassified to conform to
the presentation for fiscal 1997.
NOTE 2--FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENTS TO
RESELL:
Federal funds sold and securities purchased under agreements to resell are
summarized as follows:
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
(IN THOUSANDS)
Federal funds sold $ 15,406 $ 5,058
Securities purchased under agreements to resell:
Mortgage-backed securities -- 11,034
U.S. Government securities 2,259 --
------------ ------------
Total $ 17,665 $ 16,092
============ ============
The Association enters into purchases of securities under agreements to
resell. The amounts advanced under these agreements represent short-term
loans and are reflected as a receivable in the consolidated statements of
financial condition. The securities underlying the agreements are book-entry
securities. The securities were delivered by appropriate entry into a
third-party custodian's account designated by the Association under a written
custodial agreement that explicitly recognizes the Association's interest in
the securities. At February 28, 1997, these agreements mature within ninety
days. All of the agreements were to resell the identical securities.
Securities purchased under agreements to resell averaged approximately
$5,300,000 and $6,800,000 during fiscal 1997 and 1996, respectively, and the
maximum amounts outstanding at any month-end during fiscal 1997 and 1996 were
approximately $15,400,000 and $11,000,000, respectively.
NOTE 3--SECURITIES:
A summary of securities is as follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ------------- ---------
(IN THOUSANDS)
Securities available for sale:
February 28, 1997:
Federal Home Loan Mortgage Corporation $ 152 $ 4,467 $ -- $ 4,619
Mortgage-backed and related securities 63,985 722 572 64,135
Other 606 -- -- 606
----------- ----------- ----- ---------
Total $ 64,743 $ 5,189 $ 572 $ 69,360
=========== =========== ===== =========
February 29, 1996:
Federal Home Loan Mortgage Corporation $ 152 $ 3,050 $ -- $ 3,202
Mortgage-backed and related securities 64,704 1,062 170 65,596
Other 5,993 -- -- 5,993
----------- ----------- ----- ---------
Total $ 70,849 $ 4,112 $ 170 $ 74,791
=========== =========== ===== =========
Securities held to maturity:
February 28, 1997:
United States government and agency obligations $ 9,974 $ 11 $ 49 $ 9,936
State and municipal securities 1,474 7 -- 1,481
----------- ----------- ----- ---------
Total $ 11,448 $ 18 $ 49 $ 11,417
=========== =========== ===== =========
February 29, 1996:
United States government and agency obligations $ 7,997 $ 9 $ 81 $ 7,925
State and municipal securities 1,476 15 -- 1,491
Mortgage-backed and related securities 599 -- 8 591
----------- ----------- ----- ---------
Total $ 10,072 $ 24 $ 89 $ 10,007
=========== =========== ===== =========
Gross realized gains on sales of securities available for sale were
$3,231,000 in fiscal 1996. Gross realized gains and gross realized losses on
sales of securities held to maturity were $89,000 and $8,000, respectively,
in fiscal 1996, which were considered as maturities under the provisions of
SFAS 115. There were no sales of securities during fiscal 1997 and 1995.
21
The amortized cost and fair value of debt securities at February 28, 1997, by
contractual maturity, are shown below. Maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalties. Securities not due at a single maturity date are
presented separately.
SECURITIES SECURITIES
AVAILABLE FOR SALE HELD TO MATURITY
---------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- --------- ----------- ---------
(IN THOUSANDS)
Due in one year or less $ -- $ -- $ 6,000 $ 5,984
Due after one year through five years -- -- 5,203 5,182
Due after five years through ten years -- -- 245 251
Mortgage-backed and related securities 63,985 64,135 -- --
----------- --------- ----------- ---------
Total $ 63,985 $ 64,135 $ 11,448 $ 11,417
=========== ========= =========== =========
During fiscal 1996, Maryland Federal transferred $66,200,000 of securities
from held to maturity to available for sale as a result of guidance published
by the Financial Accounting Standards Board on the implementation of SFAS
115. The net unrealized gain on these securities at the date of transfer was
$526,000.
NOTE 4--LOANS RECEIVABLE:
Loans receivable consist of the following:
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
(IN THOUSANDS)
First mortgage loans:
Conventional, permanent $ 888,027 $ 899,907
Conventional, construction 6,846 5,159
VA and FHA 3,401 4,362
Participations 1,461 2,028
------------ ------------
Total first mortgage loans 899,735 911,456
------------ ------------
Consumer and other loans:
Second trust and home improvement 44,413 48,343
Home equity 51,683 21,355
Installment and other 4,010 4,232
------------ ------------
Total consumer and other loans 100,106 73,930
------------ ------------
Total loans 999,841 985,386
Less:
Undisbursed portion of mortgage loans 3,240 1,722
Unamortized premiums and discounts, net 373 487
Net deferred loan fees 2,356 3,815
Allowance for loan losses 4,599 4,474
------------ ------------
Loans receivable, net $ 989,273 $ 974,888
============ ============
Nonaccrual loans totaled $2,990,000 at February 28, 1997. There were no
nonaccrual loans at February 29, 1996. The amount of interest income that
would have been recorded on nonaccrual loans in accordance with their
original terms was $224,000 and $4,000 for fiscal 1997 and 1995,
respectively. The amount of interest income that was recorded on nonaccrual
loans was $52,000 and $2,000 for fiscal 1997 and 1995, respectively.
The following is a summary of the changes in the allowance for loan losses:
Year Ended
--------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS)
Balance at beginning of year $ 4,474 $ 4,424 $ 4,187
Provision for losses 275 120 300
Charge-offs (166) (76) (16)
Recoveries 16 6 3
Transfer to allowance for losses on foreclosed real
estate -- -- (50)
----------- ----------- -----------
Balance at end of year $ 4,599 $ 4,474 $ 4,424
=========== =========== ===========
NOTE 5--FORECLOSED REAL ESTATE:
Foreclosed real estate consists of the following:
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------- -------------
(IN THOUSANDS)
Acquired in foreclosure or by deed in lieu of foreclosure:
Residential properties $ 232 $ 122
Nonresidential properties 1,425 1,829
Commercial land 983 1,421
------ ------
Total foreclosed real estate 2,640 3,372
Less allowance for losses 1,341 1,282
------ ------
Foreclosed real estate, net $ 1,299 $ 2,090
====== ======
The following is a summary of the changes in the allowance for losses on
foreclosed real estate:
YEAR ENDED
-------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1995 1996
------------- ------------- -------------
(IN THOUSANDS)
Balance at beginning of year $ 1,282 $ 1,082 $ 739
Provision for losses 100 200 300
Charge-offs (41) -- (7)
Transfer from allowance for loan losses -- -- 50
------ ------ ------
Balance at end of year $ 1,341 $ 1,282 $ 1,082
====== ====== ======
The following is a summary of loss on foreclosed real estate, net:
YEAR ENDED
---------------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
--------------- ----------------- ---------------
(IN THOUSANDS)
Holding costs $ 152 $ 126 $ 138
Provision for losses 100 200 300
Gain on sales (102) (27) (74)
----- ----- -----
$ 150 $ 299 $ 364
===== ===== =====
NOTE 6--LOAN SERVICING:
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances
of these loans totaled approximately $35,000,000, $28,400,000 and $28,000,000
as of February 28, 1997, February 29, 1996 and February 28, 1995,
respectively, and represent primarily mortgage loans underlying FHLMC
pass-through securities. Custodial escrow balances maintained in connection
with the foregoing loan servicing were approximately $700,000 at both
February 28, 1997 and February 29, 1996.
NOTE 7--ACCRUED INTEREST RECEIVABLE:
Accrued interest receivable is summarized as follows:
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------- -------------
(IN THOUSANDS)
Securities $ 787 $ 709
Loans receivable 5,234 5,300
------ ------
Total $ 6,021 $ 6,009
====== ======
NOTE 8--PREMISES AND EQUIPMENT:
Premises and equipment consist of the following:
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------- -------------
(IN THOUSANDS)
Land $ 1,237 $ 1,237
Buildings and improvements 2,767 2,746
Furniture and equipment 7,977 7,554
Leasehold improvements 1,123 1,123
Automobiles 105 98
------ ------
Total premises and equipment 13,209 12,758
Less accumulated depreciation and amortization 8,633 7,929
------ ------
Premises and equipment, net $ 4,576 $ 4,829
====== ======
22
NOTE 9 - DEPOSITS:
The following is a summary of deposits:
WEIGHTED
AVERAGE
RATE AT FEBRUARY 28, 1997 FEBRUARY 29, 1996
FEBRUARY 28, -------------------- --------------------
1997 AMOUNT PERCENT AMOUNT PERCENT
------------ -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
Demand and checking
accounts, including
noninterest-bearing
deposits of $16,814,000
and $11,382,000 at
February 28, 1997 and
February 29, 1996,
respectively 1.45% $ 53,937 6.84% $ 44,497 5.64%
Money market 3.10% 42,385 5.37% 45,315 5.74%
Statement savings 3.22% 74,488 9.44% 76,514 9.70%
-------- --------- -------- ---------
170,810 21.65% 166,326 21.08%
-------- --------- -------- ---------
Certificates of deposit:
6.00% or less 529,859 67.16% 409,249 51.87%
6.01% to 8.00% 86,964 11.02% 211,282 26.78%
8.01% to 10.00% 1,292 .16% 1,756 .22%
10.01% to 12.00% 8 .01% 318 .05%
-------- --------- -------- ---------
5.45% 618,123 78.35% 622,605 78.92%
-------- --------- -------- ---------
Total 4.84% $788,933 100.00% $788,931 100.00%
======== ========= ======== =========
The aggregate amount of short-term jumbo certificates of deposit with a
minimum denomination of $100,000 was approximately $88,600,000 and
$116,300,000 at February 28, 1997 and February 29, 1996, respectively.
At February 28, 1997, scheduled maturities of certificates of deposit are as
follows:
6.00% 6.01% to 8.01% to 10.01% to
FISCAL YEAR or Less 8.00% 10.00% 12.00% Total
- ----------- --------- ---------- ---------- ----------- ---------
(IN THOUSANDS)
1998 $441,309 $23,642 $ 874 $-- $465,825
1999 52,626 38,602 150 8 91,386
2000 27,930 21,387 236 -- 49,553
2001 7,441 3,173 32 -- 10,646
2002 536 26 -- -- 562
Thereafter 17 134 -- -- 151
--------- ---------- ---------- ----------- ---------
Total $529,859 $86,964 $1,292 $ 8 $618,123
========= ========== ========== =========== =========
The following is a summary of interest expense on deposits:
YEAR ENDED
--------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
Checking $ 730 $ 760 $ 840
Money market 1,304 1,393 1,698
Statement savings 2,429 2,686 4,134
Certificates of deposit 34,329 35,059 23,558
------------ ------------ ------------
Total $38,792 $39,898 $30,230
============ ============ ============
NOTE 10 - ADVANCES FROM FEDERAL HOME LOAN BANK OF ATLANTA:
At February 28, 1997, advances from the Federal Home Loan Bank of Atlanta
(the "FHLB") are collateralized by a blanket agreement covering all
qualifying first mortgage loans and all the Association's stock in the FHLB.
Advances mature as follows as of February 28, 1997:
WEIGHTED
FISCAL AVERAGE
YEAR AMOUNT RATE
------ -------- -------
(DOLLARS IN THOUSANDS)
1998 $136,100 5.83%
1999 78,500 5.99%
2000 11,000 6.23%
After 2002 680 6.50%
--------
Total $226,280 5.91%
========
The Association, as a member of the FHLB System, is required to maintain an
investment in capital stock of the FHLB in an amount equal to the greater of
1% of its total mortgage assets or 5% of its outstanding advances.
NOTE 11 - INCOME TAXES:
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
(IN THOUSANDS)
Deferred tax liabilities:
Federal Home Loan Bank stock dividends $1,317 $1,317
Allowance for losses on loans and
foreclosed real estate -- 50
Unrealized holding gains 1,782 1,559
------------ ------------
Total deferred tax liabilities 3,099 2,926
------------ ------------
Deferred tax assets:
Loan fees 216 848
Allowance for losses on loans and
foreclosed real estate 408 --
Other 633 640
------------ ------------
Total deferred tax assets 1,257 1,488
------------ ------------
Net deferred tax liabilities $1,842 $1,438
============ ============
Pursuant to legislation enacted in 1996, the Association is not permitted to
use the reserve method previously available to thrift institutions to compute
its tax bad debt deduction for tax years beginning after December 31, 1995.
Under the provisions of this legislation, the Association will recapture its
post 1987 tax bad debt reserves in excess of actual specific bad debts
ratably over a six-year period beginning with fiscal 1997. The Association
has previously provided for deferred taxes on its post 1987 tax bad debt
reserves; therefore, this legislation will not affect the Association's net
income.
The Association has not provided a deferred tax liability on bad debt
reserves for tax purposes that arose in fiscal years beginning before
December 31, 1987. Such bad debt reserves for the Association amounted to
approximately $11,000,000 with an income tax effect of approximately
$4,200,000 at February 28, 1997. This bad debt reserve will become taxable
for income tax purposes if the Association does not maintain certain
qualified assets as defined or the reserve is charged for other than bad debt
losses.
The components of income tax expense are as follows:
YEAR ENDED
-------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
Current $1,313 $6,500 $5,886
Deferred 181 (970) (211)
------------ ------------ ------------
Total $1,494 $5,530 $5,675
============ ============ ============
Income tax expense differs from that computed at the statutory Federal income
tax rate as follows:
YEAR ENDED
-------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
Statutory Federal income tax rate 34% 35% 35%
Income tax expense at
statutory rate $2,726 $4,994 $5,158
Increase (decrease) in taxes:
State taxes, net of Federal
income tax benefit 365 649 664
Other (1,597) (113) (147)
------------ ------------ ------------
Total $1,494 $5,530 $5,675
============ ============ ============
Income tax expense for fiscal 1997 reflects a $1.6 million decrease to revise
prior estimates in recording the income tax provision.
23
NOTE 12--OTHER NONINTEREST EXPENSE:
Other noninterest expense amounts are summarized as follows:
YEAR ENDED
-------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------- ------------- -------------
(IN THOUSANDS)
Printing, postage, stationery and supplies $ 1,302 $ 1,313 $ 1,529
Professional fees 414 339 327
Telephone 332 314 273
Other 1,711 1,995 1,369
------ ------ ------
Total $ 3,759 $ 3,961 $ 3,498
====== ====== ======
NOTE 13--REGULATORY MATTERS:
The Association is subject to various regulatory capital requirements
administered by federal regulatory agencies. Failure to meet minimum capital
requirements can initiate certain regulatory actions that could have a direct
material effect on the consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Association must meet specific capital guidelines that involve
quantitative measures of the Association's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Association's capital amounts and classifications are also subject to
quantitative judgments by the regulators regarding components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts and ratios (set forth in
the following table) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to adjusted total assets (as defined). Management believes, as of
February 28, 1997, that the Association meets all capital requirements to
which it is subject.
The most recent notification from the Office of Thrift Supervision ("OTS")
categorized the Association as well capitalized under the regulatory
framework for prompt corrective action. To be well capitalized under the
prompt corrective action provisions, the Association must maintain capital
ratios as set forth in the following table. There are no conditions or events
since that notification that management believes have changed the
Association's category.
The Association's capital amounts and ratios are as follows:
TO BE
WELL
CAPITALIZED
UNDER
PROMPT
FOR CORRECTIVE
CAPITAL ADEQUACY ACTION
ACTUAL PURPOSES PROVISIONS
-------------------- ---------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- --------- --------- ----- --------- ---------
(DOLLARS IN THOUSANDS)
As of February 28, 1997:
Total capital (to risk-weighted assets) $ 92,199 15.30% $ 48,184 8.00% $ 60,260 10.00%
Tier 1 capital (to risk-weighted assets) 87,600 14.54% N/A N/ A 36,156 6.00%
Tier 1 capital (to adjusted total assets) 87,600 7.72% 34,040 3.00% 56,736 5.00%
Tangible capital (to adjusted total assets) 87,600 7.72% 17,020 1.50% N/A N/A
As of February 29, 1996:
Total capital (to risk-weighted assets) 88,583 15.02% 47,195 8.00% 58,977 10.00%
Tier 1 capital (to risk-weighted assets) 84,159 14.27% N/A N/ A 35,386 6.00%
Tier 1 capital (to adjusted total assets) 84,159 7.37% 34,250 3.00% 57,096 5.00%
Tangible capital (to adjusted total assets) 84,159 7.37% 17,125 1.50% N/A N/A
In August 1993, the OTS issued a final rule which adds an interest rate risk
component to the existing 8% risk-based capital requirement. The OTS has not
yet established an effective date for this rule. Because of the Association's
strong capitalization, management does not believe that compliance with the
new rule would adversely affect its operations.
Legislation was enacted September 30, 1996, to mitigate the disparity between
banks insured by the Bank Insurance Fund and thrifts insured by the Savings
Association Insurance Fund ("SAIF"), which were required to pay substantially
higher deposit insurance premiums. This legislation recapitalized the SAIF
through a one-time special assessment. The Association's pro-rata share of
this one-time special assessment was $5.1 million before taxes and was
recognized in fiscal 1997. This legislation also provides for a reduction in
deposit insurance premiums in subsequent periods and other regulatory reforms.
NOTE 14 -STOCKHOLDERS' EQUITY:
Under Federal regulations, the Association may not declare or pay a cash
dividend on its capital stock if the effect thereof would cause the
Association's regulatory capital to be reduced below the amount required for
the regulatory capital requirements imposed by the OTS.
Under the OTS regulations, the ability of thrift institutions such as the
Association to make "capital distributions" (defined to include payment of
dividends, stock repurchases, cash-out mergers, and other distributions
charged against the capital accounts of an institution) varies depending
primarily on the institution's regulatory capital level. Institutions are
divided into three tiers for purposes of these regulations.
At February 28, 1997, the Association was a Tier 1 institution (an
institution with capital in excess of its fully phased-in capital
requirements), and consequently was eligible to pay dividends. The OTS
retains general discretion to prohibit any otherwise permitted capital
distributions on general safety and soundness grounds and must be given 30
days advance notice of all capital distributions.
NOTE 15 - EMPLOYEE RETIREMENT PLANS:
The Association has a qualified, noncontributory defined benefit retirement
plan. Full-time employees are eligible to participate in the plan when they
attain age 25 with one year of service. Amendments to the plan have
established the 100% vesting period at five years. Plan assets consist
primarily of investments in mutual funds.
The following sets forth the funded status of the plan and the amounts shown
in the accompanying consolidated statements of financial condition:
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
(IN THOUSANDS)
Actuarial present value of benefit obligations:
Accumulated benefit obligation:
Vested benefits $ 4,131 $ 3,476
Nonvested benefits 225 187
------------ ------------
4,356 3,663
Effect of projected future compensation 2,279 2,467
------------ ------------
Projected benefit obligation 6,635 6,130
Fair value of assets held in the plan 3,740 2,895
------------ ------------
Plan assets less than the projected benefit obligation (2,895) (3,235)
Net unrecognized loss from past experience different from that
assumed 1,737 1,674
Unrecognized prior service cost (444) 43
Unrecognized net transition asset (236) (250)
------------ ------------
Accrued pension cost (included in accrued expenses and other
liabilities) $ (1,838) $ (1,768)
============ ============
Components of net pension expense are as follows:
YEAR ENDED
-------------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
--------------- --------------- ---------------
(IN THOUSANDS)
Service cost-benefits earned $ 610 $ 571 $ 484
Interest cost on projected benefit obligation 429 363 363
Actual return on assets held in the plan (354) (448) (436)
Net amortization and deferral 86 (7) (12)
----- ----- -----
Net pension expense $ 771 $ 479 $ 399
===== ===== =====
The weighted average discount rate used to measure the projected benefit
obligation is 7%, the rate of increase in future compensation levels is 5.5%,
and the expected long-term rate of return on assets is 9%.
The Association also maintains a contributory retirement 401k savings plan
for its employees. Employees who meet the length of service and age
requirements can contribute from 1% to 15% of their eligible compensation to
the plan, up to a maximum established by law. For eligible employees electing
to participate, the Association will also make a contribution to the plan
equal to 50% of the first 5% contributed by the employees. The Association's
expense for fiscal 1997, 1996 and 1995 was $121,000, $106,000 and $110,000,
respectively.
During fiscal 1997, the Board of Directors approved a deferred compensation
plan for certain management personnel. Amounts deferred under this plan are
expensed as earned, but are payable only after employment has ended.
24
NOTE 16--COMMITMENTS AND CONTINGENCIES:
In the ordinary course of business, Maryland Federal has various
outstanding commitments and contingent liabilities that are not reflected in
the accompanying consolidated financial statements. In addition, Maryland
Federal occasionally is a defendant in certain claims and legal actions
arising in the ordinary course of business. In the opinion of management,
after consultation with legal counsel, the ultimate disposition of these
matters is not expected to have a material adverse effect on the consolidated
financial position of Maryland Federal.
Lease Commitments:
A number of the Association's branch and loan production office sites are
occupied under noncancelable leases which expire on various dates through
2005. Management expects that, in the normal course of business, leases that
expire will be renewed or replaced by other leases. Total rent expense,
including equipment leases, was approximately $1,111,000, $1,066,000 and
$901,000 for fiscal 1997, 1996 and 1995, respectively.
The total commitments for future minimum annual rental payments for real
property and equipment leases are as follows as of February 28, 1997:
FISCAL YEAR Amount
- --------------- --------------
(In Thousands)
1998 $ 1,115
1999 867
2000 448
2001 337
2002 236
Thereafter 154
------
Total $ 3,157
======
Loan Commitments:
As of February 28, 1997 and February 29, 1996, the Association had
commitments to originate and purchase loans totaling approximately
$51,500,000 and $64,000,000, respectively. As of February 28, 1997 and
February 29, 1996, the Association had commitments to sell loans totaling
approximately $6,800,000 and $33,300,000, respectively.
NOTE 17--RELATED PARTY TRANSACTIONS:
In the normal course of business, the Association may make loans to directors
and executive officers of Maryland Federal, their affiliates and members of
their immediate families. The aggregate balances of these loans greater than
$60,000 were $1,512,000 and $1,799,000 as of February 28, 1997 and February
29, 1996, respectively. During fiscal 1997, $108,000 were advanced and
$395,000 were repaid with respect to these loans. During fiscal 1996,
$396,000 were advanced and $236,000 were repaid with respect to these loans.
The law firm in which the Chairman of the Board of the Company is a senior
partner, performs legal services for the Association in the ordinary course
of business. For fiscal 1997, 1996 and 1995, the firm received fees of
$410,000, $323,000 and $187,000, respectively, for services performed for the
Association, in addition to fees which were paid by borrowers.
NOTE 18--STOCK PURCHASE AND STOCK OPTION PLANS:
The Board of Directors of the Company has adopted an Employee Stock Purchase
Plan. The aggregate number of shares of common stock which may be purchased
pursuant to the plan is 166,720 shares. Eligible employees are able to
purchase stock at not less than 85% of the lesser of the fair market value of
the shares on the first day or the last day of the offering period. Common
stock purchases are made through periodic payroll deductions of no less than
2% nor more than 10% of eligible compensation. Employee purchases amounted to
4,310 shares at a price of $22.13 and 4,208 shares at a price of $24.33 in
fiscal 1997, 4,006 shares at a price of $26.83 and 3,356 shares at a price of
$20.19 in fiscal 1996, and 3,332 shares at a price of $22.53 per share and
4,122 shares at a price of $20.19 in fiscal 1995. The total number of shares
remaining at the end of fiscal 1997 amounted to 90,459 shares.
The Board of Directors has adopted a key employee stock compensation program,
a stock option and stock appreciation rights plan and a stock incentive plan.
Options may be granted to purchase up to an aggregate of 601,480 shares of
common stock at the fair market value of the shares at the time the options
are granted. These options may be exercised after three but no later than
five years after date of granting. As of February 28, 1997, options have been
granted to purchase 595,930 shares.
In March 1993, the Board of Directors adopted a Directors' stock option plan.
Options may be granted to purchase up to an aggregate of 156,000 shares of
common stock at the fair market value of the shares at the time the options
are granted. These options may be exercised after six months but no later
than ten years after date of granting. During fiscal 1994, each nonemployee
director of the Company was granted compensatory options to purchase 6,000
shares of common stock, and thereafter, on the anniversary of the effective
date of the plan for the next four years, each nonemployee director will
receive compensatory options to purchase 5,000 shares. As of February 28,
1997, options have been granted to purchase 103,500 shares.
In March 1995, the Board of Directors adopted the 1995 stock option plan.
Options may be granted to employees to purchase up to an aggregate of 160,160
shares of common stock at the fair value of the shares at the time the
options are granted. These options may be exercised 33-1/3% per year over a
three-year period commencing on the first anniversary of the granting date,
but no later than ten years after date of granting. As of February 28, 1997,
options have been granted to purchase 160,160 shares.
The following table summarizes information on these stock option plans:
Weighted
Average
Price
Per Share Shares
----------- ----------
Outstanding at February 28, 1994 $ 14.05 321,271
Granted 25.13 101,250
Exercised 9.47 (61,718)
Canceled 22.12 (5,210)
----------
Outstanding at February 28, 1995 17.88 355,593
Granted 27.22 128,800
Exercised 9.36 (101,295)
Canceled 23.66 (10,100)
----------
Outstanding at February 29, 1996 23.26 372,998
Adjustment for stock dividend -- 17,765
Granted 36.13 80,400
Exercised 17.14 (114,948)
Canceled 24.34 (9,482)
----------
Outstanding at February 28, 1997 27.05 346,733
==========
Exercisable at February 28, 1997 24.36 146,842
==========
Had compensation cost been determined on the basis of fair value pursuant to
SFAS 123, net income and primary earnings per share would have been as
follows:
Year Ended
--------------------------
February 28, February 29,
1997 1996
------------ ------------
(Dollars in Thousands,
Except Per Share Data)
Net income as reported $ 6,525 $ 8,739
Pro forma net income 6,338 8,650
Primary earnings per share as reported 2.00 2.63
Pro forma primary earnings per share 1.96 2.62
Weighted-average assumptions:
Risk-free interest rate 6.43% 5.65%
Expected life 8 years 5 years
Expected volatility of stock price 12.50% 11.00%
Expected dividends 2.00% 2.00%
The range of exercise prices for the stock options outstanding at February
28, 1997, is $21.07 to $37.50, with a weighted-average contractual life of
approximately six years.
The fair value of each stock option granted is estimated on the date of grant
using the Black-Scholes option-pricing model. The weighted-average fair value
of stock options granted during fiscal 1997 and 1996 is $9.65 and $4.84,
respectively. The method of accounting for options prescribed by SFAS 123
does not apply to options granted prior to January 1, 1995, and accordingly,
the resulting pro forma compensation costs may not be representative of that
to be expected in future years.
NOTE 19--STOCKHOLDERS' RIGHTS PLAN:
On January 18, 1990, the Board of Directors of the Company declared a
dividend distribution of one right for each outstanding share of common stock
of the Company to stockholders of record at the close of business on February
12, 1990. Each right entitles the registered holder to purchase from the
Company a unit consisting of one one-hundredth of a share (a "Unit") of
Series A Junior Participating Preferred Stock, par value $.10 per share, at a
purchase price of $45.00 per Unit. The description and terms of the rights
are set forth in a rights agreement between the Company and the rights agent.
25
The rights may be exercised only if a person or group acquires beneficial
ownership of 20% or more of the Company's common stock or announces a tender
offer or exchange offer that would result in ownership of 20% or more of the
common stock (the "Acquirer"). The Company generally may redeem the rights
for one cent each at any time before any person or group acquires beneficial
ownership of 20% or more of the common stock.
In the event that any person acquires beneficial ownership of 20% or more of
the Company's common stock, all rights holders, except the Acquirer and
affiliates and associates thereof, will be entitled to purchase common stock
from the Company at 50% of the market price. If the Company is acquired in a
merger, statutory share exchange or other business combination after the
acquisition of beneficial ownership of 20% or more of the common stock,
rights holders, other than the Acquirer and its affiliates and associates,
will be entitled to purchase the Acquirer's shares at a similar discount.
These rights, which may have a potentially dilutive effect on earnings per
share, have been excluded from the weighted average number of shares
computation, as preconditions to the exercisability of such rights were not
satisfied.
NOTE 20--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
The Association is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized
in the consolidated statements of financial condition. The contract amounts
of those instruments reflect the extent of involvement the Association has in
particular classes of financial instruments.
The Association's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
and standby letters of credit written is represented by the contractual
amount of those instruments. The Association uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments.
A summary of the contract amount of the Association's exposure to
off-balance-sheet risk is as follows:
February 28, February 29,
1997 1996
------------ ------------
(In Thousands)
Financial instruments whose contract amounts represent credit
risk:
Commitments to extend credit $ 104,176 $ 91,868
Standby letters of credit 1,978 1,962
Commitments to extend credit are agreements to lend to a customer so long as
there is no violation of any condition established in the contract.
Commitments usually have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the
Association to guarantee the performance of contractual obligations by a
customer to a third party. The majority of these guarantees extend until
satisfactory completion of the customer's contractual obligations.
NOTE 21--SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Year Ended
----------------------------------------
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
(In Thousands)
Cash paid for:
Interest $ 52,328 $ 52,144 $ 38,480
Income taxes 1,603 5,422 5,020
Transfer from loans to foreclosed real estate 1,229 281 632
Loans to finance sales of foreclosed real estate 544 208 360
NOTE 22--SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK:
Most of the Association's business activities are with customers located in
the metropolitan Washington, DC area. Service industries and Federal, state
and local governments employ a significant portion of the Washington area
labor force. Adverse changes in economic conditions could have a direct
impact on the timing and amount of payments by borrowers.
NOTE 23--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Fair value information which pertains to Maryland Federal's financial
instruments is based on the requirements set forth in Statement of Financial
Accounting Standards No. 107 ("SFAS 107"). In cases where quoted market
prices are not available, fair values are based on estimates using present
value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates
of future cash flows. In that regard, the derived fair value estimates cannot
be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. SFAS 107
excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of Maryland Federal.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and Cash Equivalents, and Federal Funds Sold and Securities Purchased
Under Agreements to Resell: The carrying amount is a reasonable estimate of
fair value.
Securities: Fair values for securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
estimated using quoted market prices for similar securities.
Loans Receivable and Loans Held for Sale: For certain homogeneous categories
of loans, such as some residential mortgages and consumer loans, fair value
is estimated using the quoted market prices for securities backed by similar
loans, adjusted for differences in loan characteristics. The fair value of
other types of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
Deposits: The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the reporting date.
The fair value of fixed-maturity certificates of deposit is estimated using
the rates currently offered for deposits of similar remaining maturities.
Advances from Federal Home Loan Bank of Atlanta: Rates currently available to
the Association for debt with similar terms and remaining maturities are used
to estimate fair value of existing debt.
Off-Balance-Sheet Instruments: The fair values of off-balance-sheet lending
commitments are estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the counterparties.
The estimated fair values of Maryland Federal's financial instruments are as
follows:
February 28, 1997 February 29, 1996
---------------------- ----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- ----------- --------- -----------
(In Thousands)
Financial assets:
Cash and cash equivalents $ 10,939 $ 10,939 $ 22,905 $ 22,905
Federal funds sold and securities purchased under agreements to
resell 17,665 17,665 16,092 16,092
Securities available for sale 69,360 69,360 74,791 74,791
Securities held to maturity 11,448 11,417 10,072 10,007
Loans held for sale 2,679 2,697 16,296 16,399
Loans receivable, net 989,273 978,464 974,888 976,105
Financial liabilities:
Deposits 788,933 764,973 788,931 778,970
Advances from FHLB 226,280 225,582 243,780 243,612
Off-balance-sheet instruments:
Commitments to extend credit -- 1,053 -- 557
Standby letters of credit -- 40 -- 39
26
NOTE 24--PARENT COMPANY ONLY FINANCIAL INFORMATION:
The condensed financial statements of the parent company only are presented
below:
Condensed Statements of Financial Condition
(Parent Company Only)
February 28, February 29,
1997 1996
------------ ------------
(In Thousands)
ASSETS:
Cash $ 3,838 $ 792
Investment in subsidiary 91,716 88,147
Securities available for sale 512 5,604
Other assets 505 --
------------ ------------
Total assets $ 96,571 $ 94,543
============ ============
LIABILITIES: $ 1,310 $ 561
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock -- --
Common stock 41 38
Additional paid-in capital 42,625 34,917
Retained earnings 66,976 67,492
Unrealized holding gains, net 2,835 2,420
Treasury stock, at cost (17,216) (10,885)
------------ ------------
Total stockholders' equity 95,261 93,982
------------ ------------
Total liabilities and stockholders' equity $ 96,571 $ 94,543
============ ============
Condensed Statements of Income
(Parent Company Only)
Year Ended
-------------------------------------------
February 28, February 29, February 28,
1997 1996 1995
------------- ------------- -------------
(In Thousands)
Advisory fee income $ 160 $ 160 $ 160
Interest income 120 92 74
General and administrative expenses 228 87 97
------ ------ ------
Income before income taxes and equity in net income of subsidiary 52 165 137
Income tax expense 19 58 53
------ ------ ------
Income before equity in net income of subsidiary 33 107 84
Equity in net income of subsidiary 6,492 8,632 8,979
------ ------ ------
NET INCOME $ 6,525 $ 8,739 $ 9,063
====== ====== ======
Condensed Statements of Cash Flows
(Parent Company Only)
Year Ended
-------------------------------------------
February 28, February 29, February 28,
1997 1996 1995
------------- ------------- -------------
(In Thousands)
OPERATING ACTIVITIES:
Net income $ 6,525 $ 8,739 $ 9,063
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in net income of subsidiary, net of distributions (2,492) (3,632) (5,979)
Decrease (increase) in other assets (505) 31 (20)
Increase (decrease) in liabilities 610 15 (14)
------ ------ ------
Net cash provided by operating activities 4,138 5,153 3,050
------ ------ ------
INVESTING ACTIVITIES:
Purchases of securities available for sale (1,020) (4,541) (319)
Proceeds from maturities of securities available for sale 6,112 -- 1,635
------ ------ ------
Net cash provided by (used in) investing activities 5,092 (4,541) 1,316
------ ------ ------
FINANCING ACTIVITIES:
Proceeds from issuance of stock under stock plans 2,177 1,124 943
Cash paid in lieu of stock dividend for fractional shares (11) -- --
Purchase of treasury stock (6,331) -- (3,448)
Cash dividends paid (2,019) (1,660) (1,363)
------ ------ ------
Net cash used in financing activities (6,184) (536) (3,868)
------ ------ ------
INCREASE IN CASH 3,046 76 498
CASH:
Beginning of year 792 716 218
------ ------ ------
End of year $ 3,838 $ 792 $ 716
====== ====== ======
27
NOTE 25--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following table presents selected quarterly financial data for the years
ended February 28, 1997 and February 29, 1996:
Year Ended February 28, 1997
------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
(In Thousands, Except Per Share Data)
Interest income $ 20,657 $ 20,445 $ 20,419 $ 20,368
Interest expense 13,461 13,002 12,970 12,772
--------- --------- --------- ---------
Net interest income 7,196 7,443 7,449 7,596
Provision for loan losses 85 60 50 80
--------- --------- --------- ---------
Net interest income after provision for loan losses 7,111 7,383 7,399 7,516
Noninterest income 736 649 664 696
SAIF recapitalization assessment -- -- 5,077 --
Other noninterest expense 4,771 4,829 4,809 4,649
--------- --------- --------- ---------
Income (loss) before income taxes 3,076 3,203 (1,823) 3,563
Income tax expense (benefit) 1,178 1,283 (2,310) 1,343
--------- --------- --------- ---------
Net income $ 1,898 $ 1,920 $ 487 $ 2,220
========= ========= ========= =========
Primary earnings per share $ .56 $ .58 $ .16 $ .70
========= ========= ========= =========
Year Ended February 29, 1996
------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
(In Thousands, Except Per Share Data)
Interest income $ 19,443 $ 19,837 $ 20,215 $ 20,623
Interest expense 12,551 13,072 13,563 13,704
--------- --------- --------- ---------
Net interest income 6,892 6,765 6,652 6,919
Provision for loan losses -- -- 50 70
--------- --------- --------- ---------
Net interest income after provision for loan losses 6,892 6,765 6,602 6,849
Gain on sales of securities -- 1,433 1,879 --
Other noninterest income 522 580 661 652
Noninterest expense 4,456 4,785 4,592 4,733
--------- --------- --------- ---------
Income before income taxes 2,958 3,993 4,550 2,768
Income tax expense 1,128 1,573 1,747 1,082
--------- --------- --------- ---------
Net income $ 1,830 $ 2,420 $ 2,803 $ 1,686
========= ========= ========= =========
Primary earnings per share $ .55 $ .71 $ .83 $ .54
========= ========= ========= =========
INDEPENDENT AUDITORS' REPORT
To The Board of Directors of
Maryland Federal Bancorp, Inc.
We have audited the accompanying consolidated statements of financial
condition of Maryland Federal Bancorp, Inc. and Subsidiary as of February 28,
1997 and February 29, 1996, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the years in the
three-year period ended February 28, 1997. These financial statements are the
responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. we believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Maryland
Federal Bancorp, Inc. and Subsidiary as of February 28, 1997 and February 29,
1996, and the results of their operations and their cash flows for each of
the years in the three-year period ended February 28, 1997, in conformity
with generally accepted accounting principles.
STOY, MALONE & COMPANY, P.C.
Bethesda, Maryland
April 7, 1997
28
Directors and Officers General
Information For
Board of Directors Shareholders
Richard B. Bland Annual Meeting
Chairman of the Board, General Counsel to the The Annual Meeting of Shareholders of
Association and Senior Partner of Lancaster, Bland, Maryland Federal Bancorp, Inc. will be
Eisele & Herring held at La Fontaine Bleu, 7963 Annapolis
Road, Lanham, Maryland, on June 18
Robert H. Halleck 1997. A formal notice of the Meeting,
President, Maryland Federal Bancorp, Inc. and together with a proxy statement and a
Maryland Federal Savings and Loan Association proxy form, will be mailed to shareholders.
A. William Blake, Jr. Transfer Agent and Registrar
Executive Vice President, Registrar and Transfer Company
Maryland Federal Bancorp, Inc. and 10 Commerce Drive
Maryland Federal Savings and Loan Association Cranford, New Jersey 07016
Richard R. Mace Independent Auditors
Self-employed as a sporting goods dealer Stoy, Malone & Company, P.C.
7315 Wisconsin Avenue
David A. McNamee Bethesda, Maryland 20814
President, McNamee, Hosea, Jernigan and Kim, P.A.
General Counsel
Thomas H. Welsh, III Lancaster, Bland, Eisele & Herring
Self-employed as a real estate developer and builder 9450 Pennsylvania Avenue - Unit 20
Upper Marlboro, Maryland 20772
Corporate Senior Vice Presidents Assistant Secretaries Special Counsel
Officers David E. Baker Margaret R. Campbell Elias, Matz, Tiernan & Herrick, L.L.P.
Maryland Federal Nancy B. Cohen Carol J. Downs 734 15th Street, N.W.
Bancorp, Inc. Ronald R. O'Brien Elfrieda Y. McDaniel Washington, D.C. 20005
J. Diane Stevenson Janet L. Norris
President Shareholder and General Inquiries
Robert H. Halleck Secretary Assistant Treasurers Mr. Robert H. Halleck
Sarah M. Costlow James P. Baker President
Executive Vice President Wilhelma L. Christian Maryland Federal Bancorp, Inc.
A. William Blake, Jr. Vice Presidents Lawrence E. DeHof 3505 Hamilton Street
Lorraine H. Blancke Dolores M. Dubich Hyattsville, MD 20782
Senior Vice President and Charlotte P. Krintz Susie L. Edwards (301) 779-1200
Chief Financial Officer Dennis C. McAdoo Linda Ericksen
Lynn B. Hounslow Marvette M. Monroe Stephanie T. Jones Stock Listing
Belinda G. Norton Keith C. Loughery The common stock of Maryland Federal
Secretary Ann C. Wiltbank Debbie L. Mancuso Bancorp, Inc. is listed on the over-the-
Sarah M. Costlow Mark J. Woolson Donna L. McGehee counter market and quoted on the
Jamie R. Murdock NASDAQ National Market System under
Maryland Federal Savings Assistant Vice Presidents Bonita J. Pieper the symbol "MFSL". As of April 5, 1997,
and Loan Association Cynthia A. Brentlinger Megan J. Stevens there were 4,109,911 shares issued, of
Phillip Burrows Michael J. Thompson which 3,204,485 were outstanding.
President Vivian E. Davis Leroy T. Tillery II
Robert H. Halleck William T. Evinger The following table sets forth market price
Patricia Garcia Auditor information for the common stock of the
Executive Vice President B. Gwen Henderson Laurie A. Zebrowski Company for the periods indicated.
A. William Blake, Jr. Perry A. Johnson
Hilde H. Kochanek Fiscal Quarter Ended High Low
Senior Vice President William O'Rourke May 31, 1995 35 23-5/8
and Treasurer Mark A. Weber August 31, 1995 34-7/8 30-1/4
Clarice M. George Amy Woreta November 30, 1995 33-1/4 29
February 29, 1996 32-1/2 30
Senior Vice President and Fiscal Quarter Ended High Low
Comptroller May 31, 1996 30-3/8 29-1/4
Lynn B. Hounstow August 31, 1996 30-1/2 28
November 30, 1996 34-5/8 29-1/2
February 28, 1997 38-3/4 32-3/4
As of April 25, 1997, the approximate
number of shareholders of record was
2,400. For a description of certain
restrictions upon the Company's ability to
pay dividends see Note 14 of the Notes to
Consolidated Financial Statements.
Annual and Other Reports
Additional copies of this Annual Report to
shareholders, and copies of the Company's
10-K statements and quarterly reports,
may be obtained without charge by
contacting the Company.
29